Investors Still Aren't Entirely Convinced By Ningbo BaoSi Energy Equipment Co., Ltd.'s (SZSE:300441) Earnings Despite 35% Price Jump

Those holding Ningbo BaoSi Energy Equipment Co., Ltd. (SZSE:300441) shares would be relieved that the share price has rebounded 35% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, despite the strong performance over the last month, the full year gain of 6.7% isn't as attractive.

Although its price has surged higher, there still wouldn't be many who think Ningbo BaoSi Energy Equipment's price-to-earnings (or "P/E") ratio of 28.2x is worth a mention when the median P/E in China is similar at about 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.

With earnings that are retreating more than the market's of late, Ningbo BaoSi Energy Equipment has been very sluggish. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

View our latest analysis for Ningbo BaoSi Energy Equipment

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Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Ningbo BaoSi Energy Equipment's is when the company's growth is tracking the market closely.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 15%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 66% during the coming year according to the one analyst following the company. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

In light of this, it's curious that Ningbo BaoSi Energy Equipment's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Ningbo BaoSi Energy Equipment appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Ningbo BaoSi Energy Equipment's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Ningbo BaoSi Energy Equipment has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Ningbo BaoSi Energy Equipment'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.