ZYNP Corporation (SZSE:002448) Surges 27% Yet Its Low P/E Is No Reason For Excitement

The ZYNP Corporation (SZSE:002448) share price has done very well over the last month, posting an excellent gain of 27%. The last 30 days bring the annual gain to a very sharp 52%.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 38x, you may still consider ZYNP as a highly attractive investment with its 17.6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

We'd have to say that with no tangible growth over the last year, ZYNP's earnings have been unimpressive. One possibility is that the P/E is low because investors think this benign earnings growth rate will likely underperform the broader market in the near future. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for ZYNP

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 ZYNP's earnings, revenue and cash flow.

How Is ZYNP's Growth Trending?

In order to justify its P/E ratio, ZYNP would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Although pleasingly EPS has lifted 37% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that ZYNP's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Even after such a strong price move, ZYNP's P/E still trails the rest of the market significantly. 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.

We've established that ZYNP maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for ZYNP with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on ZYNP, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.