Further Upside For Acrel Co.,Ltd. (SZSE:300286) Shares Could Introduce Price Risks After 52% Bounce

Acrel Co.,Ltd. (SZSE:300286) shareholders would be excited to see that the share price has had a great month, posting a 52% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 11% over that time.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may still consider AcrelLtd as an attractive investment with its 24.8x P/E ratio. 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 pleasing for AcrelLtd as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

Check out our latest analysis for AcrelLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on AcrelLtd.

How Is AcrelLtd's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 14%. Pleasingly, EPS has also lifted 30% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 27% per annum during the coming three years according to the four analysts following the company. With the market only predicted to deliver 19% each year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that AcrelLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On AcrelLtd's P/E

The latest share price surge wasn't enough to lift AcrelLtd's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that AcrelLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about these 2 warning signs we've spotted with AcrelLtd.

You might be able to find a better investment than AcrelLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.