Nantong Guosheng Intelligence Technology Group Co., Ltd.'s (SHSE:688558) Shares Bounce 44% But Its Business Still Trails The Market

Nantong Guosheng Intelligence Technology Group Co., Ltd. (SHSE:688558) shareholders have had their patience rewarded with a 44% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 25% over that time.

Although its price has surged higher, Nantong Guosheng Intelligence Technology Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.9x, since almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 64x 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.

For example, consider that Nantong Guosheng Intelligence Technology Group's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for Nantong Guosheng Intelligence Technology Group

Although there are no analyst estimates available for Nantong Guosheng Intelligence Technology Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Nantong Guosheng Intelligence Technology Group?

There's an inherent assumption that a company should underperform the market for P/E ratios like Nantong Guosheng Intelligence Technology Group's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 30%. As a result, earnings from three years ago have also fallen 27% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 37% 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 Nantong Guosheng Intelligence Technology Group is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

Despite Nantong Guosheng Intelligence Technology Group's shares building up a head of steam, its P/E still lags most other companies. 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 Nantong Guosheng Intelligence Technology Group maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Nantong Guosheng Intelligence Technology Group that you should be aware of.

Of course, you might also be able to find a better stock than Nantong Guosheng Intelligence Technology Group. 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.