There's No Escaping JDM JingDaMachine (Ningbo) Co.Ltd's (SHSE:603088) Muted Earnings Despite A 28% Share Price Rise

JDM JingDaMachine (Ningbo) Co.Ltd (SHSE:603088) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 60%.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 39x, you may still consider JDM JingDaMachine (Ningbo)Ltd as an attractive investment with its 31.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

For example, consider that JDM JingDaMachine (Ningbo)Ltd's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, 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.

See our latest analysis for JDM JingDaMachine (Ningbo)Ltd

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 JDM JingDaMachine (Ningbo)Ltd's earnings, revenue and cash flow.

How Is JDM JingDaMachine (Ningbo)Ltd's Growth Trending?

JDM JingDaMachine (Ningbo)Ltd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 3.0%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 87% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why JDM JingDaMachine (Ningbo)Ltd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

The latest share price surge wasn't enough to lift JDM JingDaMachine (Ningbo)Ltd's P/E close to the market median. 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.

We've established that JDM JingDaMachine (Ningbo)Ltd 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for JDM JingDaMachine (Ningbo)Ltd that you should be aware of.

If you're unsure about the strength of JDM JingDaMachine (Ningbo)Ltd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.