Market Might Still Lack Some Conviction On Wuxi Xinhongye Wire & Cable Co., Ltd. (SZSE:301310) Even After 26% Share Price Boost

Despite an already strong run, Wuxi Xinhongye Wire & Cable Co., Ltd. (SZSE:301310) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 32% in the last year.

Even after such a large jump in price, Wuxi Xinhongye Wire & Cable's price-to-earnings (or "P/E") ratio of 34.4x 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 39x and even P/E's above 76x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Wuxi Xinhongye Wire & Cable has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. 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 the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Wuxi Xinhongye Wire & Cable

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How Is Wuxi Xinhongye Wire & Cable's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Wuxi Xinhongye Wire & Cable's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 1.3% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 98% during the coming year according to the sole analyst following the company. With the market only predicted to deliver 36%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Wuxi Xinhongye Wire & Cable is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Despite Wuxi Xinhongye Wire & Cable's shares building up a head of steam, its P/E still lags 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 Wuxi Xinhongye Wire & Cable's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware Wuxi Xinhongye Wire & Cable is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.