ZheJiang Haers Vacuum Containers Co.,Ltd. (SZSE:002615) Surges 25% Yet Its Low P/E Is No Reason For Excitement

Despite an already strong run, ZheJiang Haers Vacuum Containers Co.,Ltd. (SZSE:002615) shares have been powering on, with a gain of 25% in the last thirty days. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, ZheJiang Haers Vacuum ContainersLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.2x, since almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 66x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

ZheJiang Haers Vacuum ContainersLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for ZheJiang Haers Vacuum ContainersLtd

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

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like ZheJiang Haers Vacuum ContainersLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 70% gain to the company's bottom line. The latest three year period has also seen an excellent 233% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 15% as estimated by the lone analyst watching the company. That's shaping up to be materially lower than the 42% growth forecast for the broader market.

In light of this, it's understandable that ZheJiang Haers Vacuum ContainersLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

ZheJiang Haers Vacuum ContainersLtd's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

As we suspected, our examination of ZheJiang Haers Vacuum ContainersLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for ZheJiang Haers Vacuum ContainersLtd that you need to be mindful of.

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.