Subdued Growth No Barrier To Shanghai Zhongchen Electronic Technology Co.,Ltd. (SHSE:603275) With Shares Advancing 35%

Shanghai Zhongchen Electronic Technology Co.,Ltd. (SHSE:603275) shareholders have had their patience rewarded with a 35% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 33%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Shanghai Zhongchen Electronic TechnologyLtd's P/E ratio of 34.9x, since the median price-to-earnings (or "P/E") ratio in China is also close to 38x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For example, consider that Shanghai Zhongchen Electronic TechnologyLtd's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Shanghai Zhongchen Electronic TechnologyLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shanghai Zhongchen Electronic TechnologyLtd will help you shine a light on its historical performance.

Does Growth Match The P/E?

In order to justify its P/E ratio, Shanghai Zhongchen Electronic TechnologyLtd would need to produce growth that's similar to 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 15%. As a result, earnings from three years ago have also fallen 22% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Shanghai Zhongchen Electronic TechnologyLtd's P/E sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Shanghai Zhongchen Electronic TechnologyLtd's P/E

Shanghai Zhongchen Electronic TechnologyLtd appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Shanghai Zhongchen Electronic TechnologyLtd revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Shanghai Zhongchen Electronic TechnologyLtd you should be aware of.

If you're unsure about the strength of Shanghai Zhongchen Electronic TechnologyLtd'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.