Eaglerise Electric & Electronic (China) Co., Ltd's (SZSE:002922) Shares Leap 28% Yet They're Still Not Telling The Full Story

Eaglerise Electric & Electronic (China) Co., Ltd (SZSE:002922) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 28% in the last year.

Although its price has surged higher, Eaglerise Electric & Electronic (China)'s price-to-earnings (or "P/E") ratio of 28x 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 33x and even P/E's above 61x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been advantageous for Eaglerise Electric & Electronic (China) 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.

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How Is Eaglerise Electric & Electronic (China)'s Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Eaglerise Electric & Electronic (China)'s to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 24% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 21% per annum as estimated by the sole analyst watching the company. With the market predicted to deliver 23% growth per year, the company is positioned for a comparable earnings result.

With this information, we find it odd that Eaglerise Electric & Electronic (China) is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Eaglerise Electric & Electronic (China)'s P/E?

Despite Eaglerise Electric & Electronic (China)'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.

Our examination of Eaglerise Electric & Electronic (China)'s analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you take the next step, you should know about the 3 warning signs for Eaglerise Electric & Electronic (China) (1 is concerning!) that we have uncovered.

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.