Stock Analysis

Zhejiang VIE Science & Technology Co., Ltd.'s (SZSE:002590) Shares Climb 29% But Its Business Is Yet to Catch Up

SZSE:002590
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Zhejiang VIE Science & Technology Co., Ltd. (SZSE:002590) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 35%.

Even after such a large jump in price, there still wouldn't be many who think Zhejiang VIE Science & Technology's price-to-earnings (or "P/E") ratio of 27.6x is worth a mention when the median P/E in China is similar at about 30x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Zhejiang VIE Science & Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform 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 not quite in favour.

Check out our latest analysis for Zhejiang VIE Science & Technology

pe-multiple-vs-industry
SZSE:002590 Price to Earnings Ratio vs Industry March 6th 2024
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 Zhejiang VIE Science & Technology's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The P/E?

Zhejiang VIE Science & Technology's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 175% gain to the company's bottom line. Pleasingly, EPS has also lifted 92% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Zhejiang VIE Science & Technology's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On Zhejiang VIE Science & Technology's P/E

Zhejiang VIE Science & Technology's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Zhejiang VIE Science & Technology currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Zhejiang VIE Science & Technology that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Valuation is complex, but we're here to simplify it.

Discover if Zhejiang VIE Science & Technology might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.