Market Might Still Lack Some Conviction On Shenzhen Sinexcel Electric Co.,Ltd. (SZSE:300693) Even After 30% Share Price Boost

Shenzhen Sinexcel Electric Co.,Ltd. (SZSE:300693) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, Shenzhen Sinexcel ElectricLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.2x, since almost half of all companies in China have P/E ratios greater than 35x and even P/E's higher than 68x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been pleasing for Shenzhen Sinexcel ElectricLtd as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Shenzhen Sinexcel ElectricLtd

Keen to find out how analysts think Shenzhen Sinexcel ElectricLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Shenzhen Sinexcel ElectricLtd's Growth Trending?

In order to justify its P/E ratio, Shenzhen Sinexcel ElectricLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a decent 9.0% gain to the company's bottom line. Pleasingly, EPS has also lifted 242% 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 40% during the coming year according to the eight analysts following the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is not materially different.

In light of this, it's peculiar that Shenzhen Sinexcel ElectricLtd's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

Despite Shenzhen Sinexcel ElectricLtd's shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Shenzhen Sinexcel ElectricLtd currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you settle on your opinion, we've discovered 2 warning signs for Shenzhen Sinexcel ElectricLtd (1 is potentially serious!) that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.