ShenZhen Woer Heat-Shrinkable Material Co.,Ltd. (SZSE:002130) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 109% in the last year.

Even after such a large jump in price, it's still not a stretch to say that ShenZhen Woer Heat-Shrinkable MaterialLtd's price-to-earnings (or "P/E") ratio of 25.6x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 28x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for ShenZhen Woer Heat-Shrinkable MaterialLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

How Is ShenZhen Woer Heat-Shrinkable MaterialLtd's Growth Trending?

ShenZhen Woer Heat-Shrinkable MaterialLtd's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. The latest three year period has also seen an excellent 57% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 27% per annum during the coming three years according to the lone analyst following the company. With the market predicted to deliver 25% growth per annum, the company is positioned for a comparable earnings result.

In light of this, it's understandable that ShenZhen Woer Heat-Shrinkable MaterialLtd's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

ShenZhen Woer Heat-Shrinkable MaterialLtd appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that ShenZhen Woer Heat-Shrinkable MaterialLtd maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for ShenZhen Woer Heat-Shrinkable MaterialLtd (1 can't be ignored!) that you should be aware of.

You might be able to find a better investment than ShenZhen Woer Heat-Shrinkable MaterialLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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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