Those holding Ningbo Jianan Electronics Co.,Ltd (SZSE:300880) shares would be relieved that the share price has rebounded 39% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 2.7% over the last year.
Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Ningbo Jianan ElectronicsLtd as an attractive investment with its 22.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
The recent earnings growth at Ningbo Jianan ElectronicsLtd would have to be considered satisfactory if not spectacular. It might be that many expect the respectable earnings performance to degrade, which has repressed the P/E. 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.
Is There Any Growth For Ningbo Jianan ElectronicsLtd?
In order to justify its P/E ratio, Ningbo Jianan ElectronicsLtd would need to produce sluggish growth that's trailing the market.
Retrospectively, the last year delivered a decent 5.3% gain to the company's bottom line. EPS has also lifted 16% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Comparing that to the market, which is predicted to deliver 41% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.
With this information, we can see why Ningbo Jianan ElectronicsLtd 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 Ningbo Jianan ElectronicsLtd's P/E
Ningbo Jianan ElectronicsLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that Ningbo Jianan ElectronicsLtd maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Ningbo Jianan ElectronicsLtd 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.