Improved Earnings Required Before Jiangnan Mould & Plastic Technology Co., Ltd. (SZSE:000700) Shares Find Their Feet

Jiangnan Mould & Plastic Technology Co., Ltd.'s (SZSE:000700) price-to-earnings (or "P/E") ratio of 10.7x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 35x and even P/E's above 67x 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 so limited.

Earnings have risen firmly for Jiangnan Mould & Plastic Technology recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Jiangnan Mould & Plastic Technology

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jiangnan Mould & Plastic Technology's earnings, revenue and cash flow.

How Is Jiangnan Mould & Plastic Technology's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Jiangnan Mould & Plastic Technology's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 17%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 38% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Jiangnan Mould & Plastic Technology is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

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 Jiangnan Mould & Plastic Technology maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Jiangnan Mould & Plastic Technology that you should be aware of.

Of course, you might also be able to find a better stock than Jiangnan Mould & Plastic Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.