Those holding Zbom Home Collection Co.,Ltd (SHSE:603801) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 44% in the last twelve months.
In spite of the firm bounce in price, Zbom Home CollectionLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.9x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 58x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
The recently shrinking earnings for Zbom Home CollectionLtd have been in line with the market. One possibility is that the P/E is low because investors think the company's earnings may begin to slide even faster. You'd much rather the company wasn't bleeding earnings if you still believe in the business. In saying that, existing shareholders may feel hopeful about the share price if the company's earnings continue tracking the market.
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, Zbom Home CollectionLtd would need to produce anemic growth that's substantially trailing the market.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 1.8%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 15% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.
Looking ahead now, EPS is anticipated to climb by 7.9% per year during the coming three years according to the twelve analysts following the company. That's shaping up to be materially lower than the 19% per annum growth forecast for the broader market.
In light of this, it's understandable that Zbom Home CollectionLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Final Word
Even after such a strong price move, Zbom Home CollectionLtd's P/E still trails the rest of the market significantly. 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.
As we suspected, our examination of Zbom Home CollectionLtd'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Plus, you should also learn about these 3 warning signs we've spotted with Zbom Home CollectionLtd (including 1 which is concerning).
If you're unsure about the strength of Zbom Home CollectionLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
