Investors Appear Satisfied With Sunwoda Electronic Co.,Ltd's (SZSE:300207) Prospects As Shares Rocket 31%

Sunwoda Electronic Co.,Ltd (SZSE:300207) shares have continued their recent momentum with a 31% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 30% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Sunwoda ElectronicLtd's price-to-earnings (or "P/E") ratio of 27.7x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 30x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Sunwoda ElectronicLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. 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 not quite in favour.

View our latest analysis for Sunwoda ElectronicLtd

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How Is Sunwoda ElectronicLtd's Growth Trending?

Sunwoda ElectronicLtd's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 23%. However, this wasn't enough as the latest three year period has seen a very unpleasant 11% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 19% per annum over the next three years. With the market predicted to deliver 19% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Sunwoda ElectronicLtd's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Sunwoda ElectronicLtd's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Sunwoda ElectronicLtd's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Having said that, be aware Sunwoda ElectronicLtd is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

If you're unsure about the strength of Sunwoda ElectronicLtd'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.