Harbin Electric Corporation Jiamusi Electric Machine CO.,Ltd (SZSE:000922) Shares Fly 35% But Investors Aren't Buying For Growth

Harbin Electric Corporation Jiamusi Electric Machine CO.,Ltd (SZSE:000922) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 7.1% isn't as attractive.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Harbin Electric Corporation Jiamusi Electric MachineLtd as an attractive investment with its 18.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Harbin Electric Corporation Jiamusi Electric MachineLtd has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Harbin Electric Corporation Jiamusi Electric MachineLtd

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

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

In order to justify its P/E ratio, Harbin Electric Corporation Jiamusi Electric MachineLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 47% gain to the company's bottom line. Still, incredibly EPS has fallen 21% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 29% over the next year. Meanwhile, the rest of the market is forecast to expand by 39%, which is noticeably more attractive.

With this information, we can see why Harbin Electric Corporation Jiamusi Electric MachineLtd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Harbin Electric Corporation Jiamusi Electric MachineLtd's P/E

Harbin Electric Corporation Jiamusi Electric MachineLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Harbin Electric Corporation Jiamusi Electric MachineLtd 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Harbin Electric Corporation Jiamusi Electric MachineLtd you should be aware of, and 1 of them is concerning.

You might be able to find a better investment than Harbin Electric Corporation Jiamusi Electric MachineLtd. 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.