AIMA Technology Group CO., LTD (SHSE:603529) Held Back By Insufficient Growth Even After Shares Climb 27%

Despite an already strong run, AIMA Technology Group CO., LTD (SHSE:603529) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 27% in the last year.

Although its price has surged higher, AIMA Technology Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 16.7x, 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 low for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for AIMA Technology Group as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for AIMA Technology Group

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How Is AIMA Technology Group's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like AIMA Technology Group's to be considered reasonable.

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 6.5%. Still, the latest three year period has seen an excellent 176% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 16% per annum during the coming three years according to the eight analysts following the company. That's shaping up to be materially lower than the 19% per annum growth forecast for the broader market.

With this information, we can see why AIMA Technology Group is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Despite AIMA Technology Group's shares building up a head of steam, its P/E still lags most other companies. 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 AIMA Technology Group'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. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for AIMA Technology Group that you need to take into consideration.

If you're unsure about the strength of AIMA Technology Group'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.