Ningbo Sunrise Elc Technology Co.,Ltd (SZSE:002937) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 33% in that time.

After such a large drop in price, Ningbo Sunrise Elc TechnologyLtd may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.7x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 54x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Ningbo Sunrise Elc TechnologyLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Ningbo Sunrise Elc TechnologyLtd

Is There Any Growth For Ningbo Sunrise Elc TechnologyLtd?

There's an inherent assumption that a company should underperform the market for P/E ratios like Ningbo Sunrise Elc TechnologyLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 61%. The latest three year period has also seen an excellent 105% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 34% as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 42%, which is noticeably more attractive.

With this information, we can see why Ningbo Sunrise Elc TechnologyLtd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Ningbo Sunrise Elc TechnologyLtd's recently weak share price has pulled its P/E below most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Ningbo Sunrise Elc TechnologyLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Ningbo Sunrise Elc TechnologyLtd that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.