JiangSu Zhenjiang New Energy Equipment Co., Ltd.'s (SHSE:603507) Shares Bounce 26% But Its Business Still Trails The Market

JiangSu Zhenjiang New Energy Equipment Co., Ltd. (SHSE:603507) 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. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 43% in the last twelve months.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider JiangSu Zhenjiang New Energy Equipment as an attractive investment with its 20.4x 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.

JiangSu Zhenjiang New Energy Equipment certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for JiangSu Zhenjiang New Energy Equipment

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 JiangSu Zhenjiang New Energy Equipment's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, JiangSu Zhenjiang New Energy Equipment would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 33% last year. The strong recent performance means it was also able to grow EPS by 46% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 41% 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 JiangSu Zhenjiang New Energy Equipment 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

JiangSu Zhenjiang New Energy Equipment's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that JiangSu Zhenjiang New Energy Equipment maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with JiangSu Zhenjiang New Energy Equipment.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.