Jiangling Motors Corporation, Ltd. (SZSE:000550) Stock Catapults 34% Though Its Price And Business Still Lag The Market

Jiangling Motors Corporation, Ltd. (SZSE:000550) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 57%.

In spite of the firm bounce in price, Jiangling Motors Corporation's price-to-earnings (or "P/E") ratio of 15.3x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 28x and even P/E's above 52x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been advantageous for Jiangling Motors Corporation as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Jiangling Motors Corporation

Keen to find out how analysts think Jiangling Motors Corporation's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 38%. The strong recent performance means it was also able to grow EPS by 148% 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.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 24% per annum, which is noticeably more attractive.

In light of this, it's understandable that Jiangling Motors Corporation'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

Despite Jiangling Motors Corporation's shares building up a head of steam, its P/E still lags most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Jiangling Motors Corporation maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Jiangling Motors Corporation you should be aware of.

You might be able to find a better investment than Jiangling Motors Corporation. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

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