Shanghai Shuixing Home Textile Co., Ltd. (SHSE:603365) Shares Fly 30% But Investors Aren't Buying For Growth

Shanghai Shuixing Home Textile Co., Ltd. (SHSE:603365) shares have continued their recent momentum with a 30% gain in the last month alone. Looking further back, the 25% 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, Shanghai Shuixing Home Textile may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.1x, since almost half of all companies in China have P/E ratios greater than 38x and even P/E's higher than 75x 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 so limited.

Shanghai Shuixing Home Textile has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Shanghai Shuixing Home Textile

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Shuixing Home Textile.

Is There Any Growth For Shanghai Shuixing Home Textile?

Shanghai Shuixing Home Textile's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 3.9%. The last three years don't look nice either as the company has shrunk EPS by 2.7% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 26% over the next year. With the market predicted to deliver 38% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Shanghai Shuixing Home Textile 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 Bottom Line On Shanghai Shuixing Home Textile's P/E

Even after such a strong price move, Shanghai Shuixing Home Textile's P/E still trails the rest of the market significantly. 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 Shanghai Shuixing Home Textile'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.

It is also worth noting that we have found 2 warning signs for Shanghai Shuixing Home Textile that you need to take into consideration.

You might be able to find a better investment than Shanghai Shuixing Home Textile. 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.