China National Electric Apparatus Research Institute Co., Ltd.'s (SHSE:688128) Price Is Right But Growth Is Lacking After Shares Rocket 27%

China National Electric Apparatus Research Institute Co., Ltd. (SHSE:688128) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 16% over that time.

Even after such a large jump in price, China National Electric Apparatus Research Institute may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.5x, 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. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, China National Electric Apparatus Research Institute has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for China National Electric Apparatus Research Institute

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China National Electric Apparatus Research Institute.

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

The only time you'd be truly comfortable seeing a P/E as low as China National Electric Apparatus Research Institute's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a worthy increase of 12%. Pleasingly, EPS has also lifted 44% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 26% as estimated by the lone analyst watching the company. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

With this information, we can see why China National Electric Apparatus Research Institute is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On China National Electric Apparatus Research Institute's P/E

The latest share price surge wasn't enough to lift China National Electric Apparatus Research Institute's P/E close to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that China National Electric Apparatus Research Institute maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for China National Electric Apparatus Research Institute you should be aware of.

Of course, you might also be able to find a better stock than China National Electric Apparatus Research Institute. 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.