New Trend International Logis-Tech Co.,Ltd. (SZSE:300532) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 23% in the last twelve months.
Even after such a large jump in price, New Trend International Logis-TechLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.4x, since almost half of all companies in China have P/E ratios greater than 27x and even P/E's higher than 50x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Earnings have risen firmly for New Trend International Logis-TechLtd recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.
How Is New Trend International Logis-TechLtd's Growth Trending?
There's an inherent assumption that a company should far underperform the market for P/E ratios like New Trend International Logis-TechLtd's to be considered reasonable.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 13% last year. Pleasingly, EPS has also lifted 636% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's noticeably more attractive on an annualised basis.
With this information, we find it odd that New Trend International Logis-TechLtd is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
The Bottom Line On New Trend International Logis-TechLtd's P/E
New Trend International Logis-TechLtd's recent share price jump still sees its P/E sitting firmly flat on the ground. 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 New Trend International Logis-TechLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.
Before you settle on your opinion, we've discovered 1 warning sign for New Trend International Logis-TechLtd that you should be aware of.
Of course, you might also be able to find a better stock than New Trend International Logis-TechLtd. 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.