Nanjing Julong Science & Technology Co.,LTD (SZSE:300644) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Following the heavy fall in price, Nanjing Julong Science & TechnologyLTD's price-to-earnings (or "P/E") ratio of 22.9x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 28x and even P/E's above 52x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for Nanjing Julong Science & TechnologyLTD as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is Nanjing Julong Science & TechnologyLTD's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Nanjing Julong Science & TechnologyLTD's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 56% gain to the company's bottom line. As a result, it also grew EPS by 17% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Nanjing Julong Science & TechnologyLTD is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Nanjing Julong Science & TechnologyLTD's P/E

Nanjing Julong Science & TechnologyLTD's P/E has taken a tumble along with its share price. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Nanjing Julong Science & TechnologyLTD maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Nanjing Julong Science & TechnologyLTD (including 1 which is potentially serious).

Of course, you might also be able to find a better stock than Nanjing Julong Science & TechnologyLTD. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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