EMTEK (Shenzhen) Co., Ltd. (SZSE:300938) Stock Rockets 40% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, EMTEK (Shenzhen) Co., Ltd. (SZSE:300938) shares have been powering on, with a gain of 40% in the last thirty days. The last month tops off a massive increase of 106% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about EMTEK (Shenzhen)'s P/E ratio of 39.5x, since the median price-to-earnings (or "P/E") ratio in China is also close to 38x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Earnings have risen firmly for EMTEK (Shenzhen) recently, which is pleasing to see. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for EMTEK (Shenzhen)

Although there are no analyst estimates available for EMTEK (Shenzhen), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is EMTEK (Shenzhen)'s Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like EMTEK (Shenzhen)'s to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 14% last year. The latest three year period has also seen an excellent 121% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that EMTEK (Shenzhen)'s P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Bottom Line On EMTEK (Shenzhen)'s P/E

EMTEK (Shenzhen) appears to be back in favour with a solid price jump getting its P/E back in line with 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 EMTEK (Shenzhen) currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 1 warning sign for EMTEK (Shenzhen) that we have uncovered.

You might be able to find a better investment than EMTEK (Shenzhen). If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.