Wuxi Longsheng Technology Co.,Ltd (SZSE:300680) Soars 50% But It's A Story Of Risk Vs Reward

Wuxi Longsheng Technology Co.,Ltd (SZSE:300680) shareholders have had their patience rewarded with a 50% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 29% in the last year.

Even after such a large jump in price, Wuxi Longsheng TechnologyLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 31.2x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 74x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Wuxi Longsheng TechnologyLtd as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

Check out our latest analysis for Wuxi Longsheng TechnologyLtd

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

Is There Any Growth For Wuxi Longsheng TechnologyLtd?

In order to justify its P/E ratio, Wuxi Longsheng TechnologyLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 91% gain to the company's bottom line. The latest three year period has also seen an excellent 77% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 41% during the coming year according to the four analysts following the company. That's shaping up to be similar to the 40% growth forecast for the broader market.

In light of this, it's peculiar that Wuxi Longsheng TechnologyLtd's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

Despite Wuxi Longsheng TechnologyLtd's shares building up a head of steam, its P/E still lags most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Wuxi Longsheng TechnologyLtd currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Wuxi Longsheng TechnologyLtd is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Wuxi Longsheng TechnologyLtd, 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.