Beijing Easpring Material Technology CO.,LTD. (SZSE:300073) Held Back By Insufficient Growth Even After Shares Climb 25%

Beijing Easpring Material Technology CO.,LTD. (SZSE:300073) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may still consider Beijing Easpring Material TechnologyLTD as a highly attractive investment with its 14.2x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Beijing Easpring Material TechnologyLTD as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Beijing Easpring Material TechnologyLTD

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How Is Beijing Easpring Material TechnologyLTD's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Beijing Easpring Material TechnologyLTD's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 43%. Even so, admirably EPS has lifted 65% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 5.8% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 19% each year, which is noticeably more attractive.

With this information, we can see why Beijing Easpring Material TechnologyLTD 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.

The Final Word

Even after such a strong price move, Beijing Easpring Material TechnologyLTD's P/E still trails the rest of the market significantly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Beijing Easpring Material TechnologyLTD 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Beijing Easpring Material TechnologyLTD you should be aware of.

Of course, you might also be able to find a better stock than Beijing Easpring Material TechnologyLTD. 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.