Zhang Jia Gang Freetrade Science&Technology Group Co.,Ltd. (SHSE:600794) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 28% share price drop.
Even after such a large drop in price, Zhang Jia Gang Freetrade Science&Technology GroupLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.4x, since almost half of all companies in China have P/E ratios greater than 26x and even P/E's higher than 45x 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.
Zhang Jia Gang Freetrade Science&Technology GroupLtd 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.
How Is Zhang Jia Gang Freetrade Science&Technology GroupLtd's Growth Trending?
In order to justify its P/E ratio, Zhang Jia Gang Freetrade Science&Technology GroupLtd would need to produce sluggish growth that's trailing the market.
Retrospectively, the last year delivered an exceptional 77% gain to the company's bottom line. The latest three year period has also seen an excellent 37% 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.
Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 24% over the next year. That's shaping up to be materially lower than the 41% growth forecast for the broader market.
With this information, we can see why Zhang Jia Gang Freetrade Science&Technology GroupLtd is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Zhang Jia Gang Freetrade Science&Technology GroupLtd's P/E?
The softening of Zhang Jia Gang Freetrade Science&Technology GroupLtd's shares means its P/E is now sitting at a pretty low level. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that Zhang Jia Gang Freetrade Science&Technology GroupLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Having said that, be aware Zhang Jia Gang Freetrade Science&Technology GroupLtd is showing 1 warning sign in our investment analysis, you should know about.
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.
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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.