Shenyang Jinbei Automotive Company Limited's (SHSE:600609) Shares Leap 27% Yet They're Still Not Telling The Full Story

Those holding Shenyang Jinbei Automotive Company Limited (SHSE:600609) shares would be relieved that the share price has rebounded 27% 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 5.5% over the last year.

In spite of the firm bounce in price, Shenyang Jinbei Automotive may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 25x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x 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.

With earnings growth that's exceedingly strong of late, Shenyang Jinbei Automotive has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Shenyang Jinbei Automotive

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shenyang Jinbei Automotive will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 121% last year. The strong recent performance means it was also able to grow EPS by 198% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

It's interesting to note that the rest of the market is similarly expected to grow by 41% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Shenyang Jinbei Automotive's P/E sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Final Word

The latest share price surge wasn't enough to lift Shenyang Jinbei Automotive's P/E close to the market median. 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.

Our examination of Shenyang Jinbei Automotive revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Shenyang Jinbei Automotive with six simple checks on some of these key factors.

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.