Market Might Still Lack Some Conviction On L&K Engineering (Suzhou) Co.,Ltd. (SHSE:603929) Even After 33% Share Price Boost

Those holding L&K Engineering (Suzhou) Co.,Ltd. (SHSE:603929) shares would be relieved that the share price has rebounded 33% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.

Although its price has surged higher, L&K Engineering (Suzhou)Ltd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.2x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

L&K Engineering (Suzhou)Ltd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

Check out our latest analysis for L&K Engineering (Suzhou)Ltd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on L&K Engineering (Suzhou)Ltd will help you shine a light on its historical performance.

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

The only time you'd be truly comfortable seeing a P/E as depressed as L&K Engineering (Suzhou)Ltd's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 314% gain to the company's bottom line. Pleasingly, EPS has also lifted 2,917% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that L&K Engineering (Suzhou)Ltd's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On L&K Engineering (Suzhou)Ltd's P/E

L&K Engineering (Suzhou)Ltd's recent share price jump still sees its P/E sitting firmly flat on the ground. 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 L&K Engineering (Suzhou)Ltd revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You always need to take note of risks, for example - L&K Engineering (Suzhou)Ltd has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than L&K Engineering (Suzhou)Ltd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.