ShenZhen Woer Heat-Shrinkable Material Co.,Ltd. (SZSE:002130) Shares Fly 27% But Investors Aren't Buying For Growth

ShenZhen Woer Heat-Shrinkable Material Co.,Ltd. (SZSE:002130) shareholders are no doubt pleased to see that the share price has bounced 27% 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 9.5% over the last year.

Although its price has surged higher, ShenZhen Woer Heat-Shrinkable MaterialLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12.5x, since almost half of all companies in China have P/E ratios greater than 31x and even P/E's higher than 56x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, ShenZhen Woer Heat-Shrinkable MaterialLtd has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ShenZhen Woer Heat-Shrinkable MaterialLtd.

How Is ShenZhen Woer Heat-Shrinkable MaterialLtd's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like ShenZhen Woer Heat-Shrinkable MaterialLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 14% last year. The latest three year period has also seen an excellent 82% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 25% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to expand by 42%, which is noticeably more attractive.

With this information, we can see why ShenZhen Woer Heat-Shrinkable MaterialLtd is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From ShenZhen Woer Heat-Shrinkable MaterialLtd's P/E?

ShenZhen Woer Heat-Shrinkable MaterialLtd's recent share price jump still sees its P/E sitting firmly flat on the ground. 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 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for ShenZhen Woer Heat-Shrinkable MaterialLtd with six simple checks on some of these key factors.

If you're unsure about the strength of ShenZhen Woer Heat-Shrinkable MaterialLtd'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.