Zhejiang Qianjiang Motorcycle Co., Ltd. (SZSE:000913) Stock Catapults 28% Though Its Price And Business Still Lag The Market

Zhejiang Qianjiang Motorcycle Co., Ltd. (SZSE:000913) shares have continued their recent momentum with a 28% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 11% over that time.

Although its price has surged higher, Zhejiang Qianjiang Motorcycle's price-to-earnings (or "P/E") ratio of 17.2x 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 33x and even P/E's above 61x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Zhejiang Qianjiang Motorcycle's earnings growth of late has been pretty similar to most other companies. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Zhejiang Qianjiang Motorcycle

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Qianjiang Motorcycle.

How Is Zhejiang Qianjiang Motorcycle's Growth Trending?

Zhejiang Qianjiang Motorcycle's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. However, a few strong years before that means that it was still able to grow EPS by an impressive 55% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 15% per annum over the next three years. With the market predicted to deliver 23% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Zhejiang Qianjiang Motorcycle's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Zhejiang Qianjiang Motorcycle's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of Zhejiang Qianjiang Motorcycle'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.

You should always think about risks. Case in point, we've spotted 1 warning sign for Zhejiang Qianjiang Motorcycle you should be aware of.

Of course, you might also be able to find a better stock than Zhejiang Qianjiang Motorcycle. 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.