Even With A 38% Surge, Cautious Investors Are Not Rewarding Zhejiang Jinggong Integration Technology Co., Ltd.'s (SZSE:002006) Performance Completely

Zhejiang Jinggong Integration Technology Co., Ltd. (SZSE:002006) shareholders would be excited to see that the share price has had a great month, posting a 38% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 10% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that Zhejiang Jinggong Integration Technology's price-to-earnings (or "P/E") ratio of 36.1x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 34x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings that are retreating more than the market's of late, Zhejiang Jinggong Integration Technology has been very sluggish. One possibility is that the P/E is moderate because investors think the company's earnings trend will eventually fall in line with most others in the market. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Zhejiang Jinggong Integration Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Jinggong Integration Technology.

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

The only time you'd be comfortable seeing a P/E like Zhejiang Jinggong Integration Technology's is when the company's growth is tracking the market closely.

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 36%. Still, the latest three year period has seen an excellent 141% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 34% per year over the next three years. That's shaping up to be materially higher than the 19% per year growth forecast for the broader market.

In light of this, it's curious that Zhejiang Jinggong Integration Technology's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Zhejiang Jinggong Integration Technology's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Zhejiang Jinggong Integration Technology currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Zhejiang Jinggong Integration Technology that you should be aware of.

You might be able to find a better investment than Zhejiang Jinggong Integration Technology. 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.