There's No Escaping Fujian SBS Zipper Science&Technology Co., Ltd's (SZSE:002098) Muted Earnings Despite A 25% Share Price Rise

Fujian SBS Zipper Science&Technology Co., Ltd (SZSE:002098) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 18% in the last twelve months.

In spite of the firm bounce in price, Fujian SBS Zipper Science&Technology's price-to-earnings (or "P/E") ratio of 16.9x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 55x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's exceedingly strong of late, Fujian SBS Zipper Science&Technology has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Fujian SBS Zipper Science&Technology

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Fujian SBS Zipper Science&Technology's earnings, revenue and cash flow.

Is There Any Growth For Fujian SBS Zipper Science&Technology?

There's an inherent assumption that a company should underperform the market for P/E ratios like Fujian SBS Zipper Science&Technology's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 40% last year. The latest three year period has also seen an excellent 121% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 41% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Fujian SBS Zipper Science&Technology is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Fujian SBS Zipper Science&Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Fujian SBS Zipper Science&Technology revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Fujian SBS Zipper Science&Technology with six simple checks on some of these key factors.

If you're unsure about the strength of Fujian SBS Zipper Science&Technology'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.