Zhejiang Cfmoto Power Co.,Ltd (SHSE:603129) Held Back By Insufficient Growth Even After Shares Climb 32%

Zhejiang Cfmoto Power Co.,Ltd (SHSE:603129) shareholders have had their patience rewarded with a 32% share price jump in the last month. 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, Zhejiang Cfmoto PowerLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.2x, since almost half of all companies in China have P/E ratios greater than 31x and even P/E's higher than 56x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Zhejiang Cfmoto PowerLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Zhejiang Cfmoto PowerLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Cfmoto PowerLtd.

Is There Any Growth For Zhejiang Cfmoto PowerLtd?

In order to justify its P/E ratio, Zhejiang Cfmoto PowerLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 41% gain to the company's bottom line. Pleasingly, EPS has also lifted 139% in aggregate from three years ago, 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.

Turning to the outlook, the next year should generate growth of 30% as estimated by the nine analysts watching the company. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Zhejiang Cfmoto PowerLtd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Zhejiang Cfmoto PowerLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Zhejiang Cfmoto PowerLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Zhejiang Cfmoto PowerLtd.

You might be able to find a better investment than Zhejiang Cfmoto PowerLtd. 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.