Zhejiang Sling Automobile Bearing Co., Ltd. (SZSE:301550) Stock Catapults 26% Though Its Price And Business Still Lag The Market

Zhejiang Sling Automobile Bearing Co., Ltd. (SZSE:301550) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Even after such a large jump in price, Zhejiang Sling Automobile Bearing's price-to-earnings (or "P/E") ratio of 26.9x 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 32x and even P/E's above 58x 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 limited.

Zhejiang Sling Automobile Bearing certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Zhejiang Sling Automobile Bearing

Want the full picture on analyst estimates for the company? Then our free report on Zhejiang Sling Automobile Bearing will help you uncover what's on the horizon.

How Is Zhejiang Sling Automobile Bearing's Growth Trending?

In order to justify its P/E ratio, Zhejiang Sling Automobile Bearing would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see EPS up by 167% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 0.6% as estimated by the lone analyst watching the company. Meanwhile, the broader market is forecast to expand by 40%, which paints a poor picture.

In light of this, it's understandable that Zhejiang Sling Automobile Bearing's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

Despite Zhejiang Sling Automobile Bearing's shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Zhejiang Sling Automobile Bearing's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Zhejiang Sling Automobile Bearing with six simple checks will allow you to discover any risks that could be an issue.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.