Create Technology & Science Co.,Ltd.'s (SZSE:000551) Price Is Right But Growth Is Lacking After Shares Rocket 32%

Create Technology & Science Co.,Ltd. (SZSE:000551) shareholders are no doubt pleased to see that the share price has bounced 32% in the last month, although it is still struggling to make up recently lost ground. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 7.2% over the last year.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Create Technology & ScienceLtd as an attractive investment with its 20.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for Create Technology & ScienceLtd as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

Check out our latest analysis for Create Technology & ScienceLtd

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 Create Technology & ScienceLtd's earnings, revenue and cash flow.

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

In order to justify its P/E ratio, Create Technology & ScienceLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 34% gain to the company's bottom line. The latest three year period has also seen an excellent 56% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 41% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Create Technology & ScienceLtd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Create Technology & ScienceLtd's P/E?

Create Technology & ScienceLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Create Technology & ScienceLtd revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Create Technology & ScienceLtd that you should be aware of.

If you're unsure about the strength of Create Technology & ScienceLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.