Even With A 68% Surge, Cautious Investors Are Not Rewarding ShenZhen Woer Heat-Shrinkable Material Co.,Ltd.'s (SZSE:002130) Performance Completely

ShenZhen Woer Heat-Shrinkable Material Co.,Ltd. (SZSE:002130) shares have continued their recent momentum with a 68% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 70% in the last year.

In spite of the firm bounce in price, ShenZhen Woer Heat-Shrinkable MaterialLtd's price-to-earnings (or "P/E") ratio of 22.4x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 54x are quite common. 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 advantageous for ShenZhen Woer Heat-Shrinkable MaterialLtd as its earnings have been rising faster than most other companies. 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 ShenZhen Woer Heat-Shrinkable MaterialLtd

Keen to find out how analysts think ShenZhen Woer Heat-Shrinkable MaterialLtd'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, ShenZhen Woer Heat-Shrinkable MaterialLtd would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. The latest three year period has also seen an excellent 82% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 39% over the next year. With the market only predicted to deliver 36%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that ShenZhen Woer Heat-Shrinkable MaterialLtd's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Despite ShenZhen Woer Heat-Shrinkable MaterialLtd's shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that ShenZhen Woer Heat-Shrinkable MaterialLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for ShenZhen Woer Heat-Shrinkable MaterialLtd with six simple checks.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.