Zhejiang Biyi Electric Appliance Co., Ltd. (SHSE:603215) Stock Rockets 33% But Many Are Still Ignoring The Company

Zhejiang Biyi Electric Appliance Co., Ltd. (SHSE:603215) shareholders have had their patience rewarded with a 33% share price jump in the last month. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump 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 30.4x, since almost half of all companies in China have P/E ratios greater than 35x and even P/E's higher than 67x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times haven't been advantageous for Zhejiang Biyi Electric Appliance as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. 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.

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Does Growth Match The Low P/E?

Zhejiang Biyi Electric Appliance's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 43% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 22% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 36% over the next year. With the market predicted to deliver 38% growth , the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Zhejiang Biyi Electric Appliance's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

The latest share price surge wasn't enough to lift Zhejiang Biyi Electric Appliance's P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Zhejiang Biyi Electric Appliance's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you take the next step, you should know about the 3 warning signs for Zhejiang Biyi Electric Appliance (1 is a bit concerning!) that we have uncovered.

If you're unsure about the strength of Zhejiang Biyi Electric Appliance's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.