There's No Escaping Fujian Longxi Bearing (Group) Co., Ltd's (SHSE:600592) Muted Earnings Despite A 26% Share Price Rise

Those holding Fujian Longxi Bearing (Group) Co., Ltd (SHSE:600592) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Fujian Longxi Bearing (Group) as an attractive investment with its 19.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Fujian Longxi Bearing (Group) as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

View our latest analysis for Fujian Longxi Bearing (Group)

Although there are no analyst estimates available for Fujian Longxi Bearing (Group), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Fujian Longxi Bearing (Group)?

There's an inherent assumption that a company should underperform the market for P/E ratios like Fujian Longxi Bearing (Group)'s to be considered reasonable.

Retrospectively, the last year delivered an exceptional 101% gain to the company's bottom line. The latest three year period has also seen an excellent 30% 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.

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.

With this information, we can see why Fujian Longxi Bearing (Group) is trading at a P/E lower than the market. 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 Final Word

Despite Fujian Longxi Bearing (Group)'s shares building up a head of steam, its P/E still lags most other companies. 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 Fujian Longxi Bearing (Group) revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for Fujian Longxi Bearing (Group) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.