There's No Escaping Zhejiang Biyi Electric Appliance Co., Ltd.'s (SHSE:603215) Muted Earnings Despite A 26% Share Price Rise

Zhejiang Biyi Electric Appliance Co., Ltd. (SHSE:603215) shareholders are no doubt pleased to see that the share price has bounced 26% 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 27% over that time.

In spite of the firm bounce in price, Zhejiang Biyi Electric Appliance may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.5x, since almost half of all companies in China have P/E ratios greater than 28x and even P/E's higher than 53x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Zhejiang Biyi Electric Appliance could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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 Zhejiang Biyi Electric Appliance

Keen to find out how analysts think Zhejiang Biyi Electric Appliance's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Zhejiang Biyi Electric Appliance's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 39%. This means it has also seen a slide in earnings over the longer-term as EPS is down 13% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 19% per year during the coming three years according to the three analysts following the company. With the market predicted to deliver 24% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Zhejiang Biyi Electric Appliance's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Despite Zhejiang Biyi Electric Appliance's shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Zhejiang Biyi Electric Appliance maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Zhejiang Biyi Electric Appliance (at least 1 which can't be ignored), and understanding them should be part of your investment process.

Of course, you might also be able to find a better stock than Zhejiang Biyi Electric Appliance. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.