There's No Escaping Shandong Zhangqiu Blower Co., Ltd's (SZSE:002598) Muted Earnings Despite A 26% Share Price Rise

Those holding Shandong Zhangqiu Blower Co., Ltd (SZSE:002598) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 36% over that time.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Shandong Zhangqiu Blower as an attractive investment with its 22.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Shandong Zhangqiu Blower has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the respectable earnings performance to degrade, which has repressed the P/E. 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.

View our latest analysis for Shandong Zhangqiu Blower

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shandong Zhangqiu Blower will help you shine a light on its historical performance.

Is There Any Growth For Shandong Zhangqiu Blower?

The only time you'd be truly comfortable seeing a P/E as low as Shandong Zhangqiu Blower's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.6% last year. The latest three year period has also seen an excellent 43% 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.

This is in contrast to the rest of the market, which is expected to grow by 41% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Shandong Zhangqiu Blower is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

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

Despite Shandong Zhangqiu Blower's shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Shandong Zhangqiu Blower that you should be aware of.

Of course, you might also be able to find a better stock than Shandong Zhangqiu Blower. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.