Market Might Still Lack Some Conviction On JinGuan Electric Co., Ltd. (SHSE:688517) Even After 42% Share Price Boost

JinGuan Electric Co., Ltd. (SHSE:688517) shareholders would be excited to see that the share price has had a great month, posting a 42% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 7.7% isn't as impressive.

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 34x, you may still consider JinGuan Electric as an attractive investment with its 23x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for JinGuan Electric as its earnings have risen in spite of the market's earnings going into reverse. 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for JinGuan Electric

Keen to find out how analysts think JinGuan Electric's future stacks up against the industry? In that case, our free report is a great place to start.

How Is JinGuan Electric's Growth Trending?

JinGuan Electric's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. The latest three year period has also seen a 6.2% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 164% as estimated by the lone analyst watching the company. With the market only predicted to deliver 37%, the company is positioned for a stronger earnings result.

With this information, we find it odd that JinGuan Electric is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

The latest share price surge wasn't enough to lift JinGuan Electric's P/E close to the market median. 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.

We've established that JinGuan Electric currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you settle on your opinion, we've discovered 1 warning sign for JinGuan Electric that you should be aware of.

You might be able to find a better investment than JinGuan Electric. 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.