There's No Escaping Xiangyang BOYA Precision Industrial Equipments Co., Ltd's (SZSE:300971) Muted Earnings Despite A 35% Share Price Rise

Xiangyang BOYA Precision Industrial Equipments Co., Ltd (SZSE:300971) shareholders are no doubt pleased to see that the share price has bounced 35% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 20% over that time.

Although its price has surged higher, Xiangyang BOYA Precision Industrial Equipments' price-to-earnings (or "P/E") ratio of 25.7x 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 31x and even P/E's above 55x 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 earnings growth achieved at Xiangyang BOYA Precision Industrial Equipments over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. 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.

See our latest analysis for Xiangyang BOYA Precision Industrial Equipments

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Xiangyang BOYA Precision Industrial Equipments' earnings, revenue and cash flow.

Is There Any Growth For Xiangyang BOYA Precision Industrial Equipments?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 21% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 44% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's an unpleasant look.

In light of this, it's understandable that Xiangyang BOYA Precision Industrial Equipments' P/E would sit below the majority of other companies. 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.

What We Can Learn From Xiangyang BOYA Precision Industrial Equipments' P/E?

The latest share price surge wasn't enough to lift Xiangyang BOYA Precision Industrial Equipments' 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 Xiangyang BOYA Precision Industrial Equipments 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. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for Xiangyang BOYA Precision Industrial Equipments that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.