Hefei Jingsong Intelligent Technology Co.,Ltd.'s (SHSE:688251) Price Is Right But Growth Is Lacking After Shares Rocket 26%

Hefei Jingsong Intelligent Technology Co.,Ltd. (SHSE:688251) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 62% in the last year.

Even after such a large jump in price, Hefei Jingsong Intelligent TechnologyLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.7x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 71x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for Hefei Jingsong Intelligent TechnologyLtd recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. 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.

See our latest analysis for Hefei Jingsong Intelligent TechnologyLtd

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 Hefei Jingsong Intelligent TechnologyLtd's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Hefei Jingsong Intelligent TechnologyLtd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 20% 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. 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 38% shows it's an unpleasant look.

In light of this, it's understandable that Hefei Jingsong Intelligent TechnologyLtd's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Hefei Jingsong Intelligent TechnologyLtd's P/E

Hefei Jingsong Intelligent TechnologyLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Hefei Jingsong Intelligent 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's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Hefei Jingsong Intelligent TechnologyLtd (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

You might be able to find a better investment than Hefei Jingsong Intelligent 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.