Despite an already strong run, Guangdong Jushen Logistics Co., Ltd. (SZSE:001202) shares have been powering on, with a gain of 25% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.1% in the last twelve months.

Even after such a large jump in price, Guangdong Jushen Logistics may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 26.3x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 73x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for Guangdong Jushen Logistics as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is Guangdong Jushen Logistics' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Guangdong Jushen Logistics' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 32% gain to the company's bottom line. Still, incredibly EPS has fallen 7.8% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's an unpleasant look.

In light of this, it's understandable that Guangdong Jushen Logistics' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Guangdong Jushen Logistics' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Guangdong Jushen Logistics revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Guangdong Jushen Logistics (1 makes us a bit uncomfortable!) that we have uncovered.

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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