Comefly Outdoor Co., Ltd. (SHSE:603908) Stock Rockets 26% But Many Are Still Ignoring The Company

Comefly Outdoor Co., Ltd. (SHSE:603908) shares have continued their recent momentum with a 26% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.1% in the last twelve months.

In spite of the firm bounce in price, Comefly Outdoor may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 28.2x, since almost half of all companies in China have P/E ratios greater than 35x and even P/E's higher than 69x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Comefly Outdoor 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. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered a frustrating 26% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 31% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 47% as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 39%, which is noticeably less attractive.

With this information, we find it odd that Comefly Outdoor is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Comefly Outdoor's P/E?

Comefly Outdoor's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

Our examination of Comefly Outdoor's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Comefly Outdoor with six simple checks.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.