Zhejiang grandwall electric science&technology co.,ltd.'s (SHSE:603897) Share Price Boosted 27% But Its Business Prospects Need A Lift Too

Despite an already strong run, Zhejiang grandwall electric science&technology co.,ltd. (SHSE:603897) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

In spite of the firm bounce in price, Zhejiang grandwall electric science&technologyltd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.3x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 73x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for Zhejiang grandwall electric science&technologyltd 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 that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Zhejiang grandwall electric science&technologyltd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Zhejiang grandwall electric science&technologyltd will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Zhejiang grandwall electric science&technologyltd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 96% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 26% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 38% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Zhejiang grandwall electric science&technologyltd is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On Zhejiang grandwall electric science&technologyltd's P/E

Zhejiang grandwall electric science&technologyltd'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.

As we suspected, our examination of Zhejiang grandwall electric science&technologyltd revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Zhejiang grandwall electric science&technologyltd that you need to take into consideration.

You might be able to find a better investment than Zhejiang grandwall electric science&technologyltd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.