Jiangsu Ankura Intelligent Power Co., Ltd. (SZSE:300617) Stock Catapults 26% Though Its Price And Business Still Lag The Market

Jiangsu Ankura Intelligent Power Co., Ltd. (SZSE:300617) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 26% in the last year.

Although its price has surged higher, Jiangsu Ankura Intelligent Power's price-to-earnings (or "P/E") ratio of 33.1x 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 38x and even P/E's above 74x 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.

The recent earnings growth at Jiangsu Ankura Intelligent Power would have to be considered satisfactory if not spectacular. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Jiangsu Ankura Intelligent Power

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How Is Jiangsu Ankura Intelligent Power's Growth Trending?

In order to justify its P/E ratio, Jiangsu Ankura Intelligent Power would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a decent 7.1% gain to the company's bottom line. Still, lamentably EPS has fallen 16% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 37% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Jiangsu Ankura Intelligent Power is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Jiangsu Ankura Intelligent Power's P/E

The latest share price surge wasn't enough to lift Jiangsu Ankura Intelligent Power's P/E close to the market median. 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.

As we suspected, our examination of Jiangsu Ankura Intelligent Power revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Jiangsu Ankura Intelligent Power with six simple checks on some of these key factors.

If you're unsure about the strength of Jiangsu Ankura Intelligent Power'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.