Shandong Zhangqiu Blower Co., Ltd's (SZSE:002598) Share Price Boosted 29% But Its Business Prospects Need A Lift Too

Shandong Zhangqiu Blower Co., Ltd (SZSE:002598) shares have continued their recent momentum with a 29% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 6.4% isn't as impressive.

In spite of the firm bounce in price, Shandong Zhangqiu Blower may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 31.6x, since almost half of all companies in China have P/E ratios greater than 36x and even P/E's higher than 70x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For example, consider that Shandong Zhangqiu Blower's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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.

See our latest analysis for Shandong Zhangqiu Blower

Although there are no analyst estimates available for Shandong Zhangqiu Blower, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Shandong Zhangqiu Blower would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 4.7%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 6.6% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 39% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Shandong Zhangqiu Blower's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Shandong Zhangqiu Blower's P/E

The latest share price surge wasn't enough to lift Shandong Zhangqiu Blower's P/E close to the market median. 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.

As we suspected, our examination of Shandong Zhangqiu Blower 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.

You always need to take note of risks, for example - Shandong Zhangqiu Blower has 1 warning sign we think you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.