Subdued Growth No Barrier To NanJing Research Institute of Surveying, Mapping & Geotechnical Investigation, Co.Ltd (SZSE:300826) With Shares Advancing 25%

NanJing Research Institute of Surveying, Mapping & Geotechnical Investigation, Co.Ltd (SZSE:300826) shares have continued their recent momentum with a 25% gain in the last month alone. 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.

Since its price has surged higher, NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's price-to-earnings (or "P/E") ratio of 69.4x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 36x and even P/E's below 21x 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 so lofty.

For instance, NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd

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 NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's earnings, revenue and cash flow.

How Is NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 31%. This means it has also seen a slide in earnings over the longer-term as EPS is down 50% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 39% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's P/E

Shares in NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd have built up some good momentum lately, which has really inflated its P/E. 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 NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 5 warning signs for NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd (of which 1 makes us a bit uncomfortable!) you should know about.

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.