Even With A 25% Surge, Cautious Investors Are Not Rewarding Jiangsu Seagull Cooling Tower Co.,Ltd.'s (SHSE:603269) Performance Completely

Despite an already strong run, Jiangsu Seagull Cooling Tower Co.,Ltd. (SHSE:603269) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 38%.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may still consider Jiangsu Seagull Cooling TowerLtd as an attractive investment with its 28.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Jiangsu Seagull Cooling TowerLtd has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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How Is Jiangsu Seagull Cooling TowerLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Jiangsu Seagull Cooling TowerLtd's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 15% last year. Pleasingly, EPS has also lifted 64% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 44% each year as estimated by the one analyst watching the company. With the market only predicted to deliver 26% per annum, the company is positioned for a stronger earnings result.

With this information, we find it odd that Jiangsu Seagull Cooling TowerLtd is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Jiangsu Seagull Cooling TowerLtd's P/E?

Jiangsu Seagull Cooling TowerLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Jiangsu Seagull Cooling TowerLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for Jiangsu Seagull Cooling TowerLtd that we have uncovered.

If you're unsure about the strength of Jiangsu Seagull Cooling TowerLtd'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.