Zhejiang Sanfer Electric Co., Ltd's (SHSE:605336) Shares Leap 39% Yet They're Still Not Telling The Full Story

Despite an already strong run, Zhejiang Sanfer Electric Co., Ltd (SHSE:605336) shares have been powering on, with a gain of 39% in the last thirty days. The last 30 days bring the annual gain to a very sharp 41%.

Even after such a large jump in price, it's still not a stretch to say that Zhejiang Sanfer Electric's price-to-earnings (or "P/E") ratio of 34.6x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 38x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times haven't been advantageous for Zhejiang Sanfer Electric as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Zhejiang Sanfer Electric

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

Is There Some Growth For Zhejiang Sanfer Electric?

The only time you'd be comfortable seeing a P/E like Zhejiang Sanfer Electric's is when the company's growth is tracking the market closely.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 53%. The last three years don't look nice either as the company has shrunk EPS by 63% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 122% as estimated by the lone analyst watching the company. With the market only predicted to deliver 37%, the company is positioned for a stronger earnings result.

With this information, we find it interesting that Zhejiang Sanfer Electric is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Zhejiang Sanfer Electric's P/E

Zhejiang Sanfer Electric's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Zhejiang Sanfer Electric (2 make us uncomfortable) you should be aware of.

Of course, you might also be able to find a better stock than Zhejiang Sanfer Electric. 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.