Zhejiang Giuseppe Garment Co., Ltd's (SZSE:002687) Price Is Right But Growth Is Lacking After Shares Rocket 33%

Zhejiang Giuseppe Garment Co., Ltd (SZSE:002687) shareholders are no doubt pleased to see that the share price has bounced 33% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, despite the strong performance over the last month, the full year gain of 9.4% isn't as attractive.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Zhejiang Giuseppe Garment as a highly attractive investment with its 12.5x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Zhejiang Giuseppe Garment has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Zhejiang Giuseppe Garment

Want the full picture on analyst estimates for the company? Then our free report on Zhejiang Giuseppe Garment will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

Zhejiang Giuseppe Garment'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.

Retrospectively, the last year delivered an exceptional 66% gain to the company's bottom line. Pleasingly, EPS has also lifted 47% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 30% as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 41%, which is noticeably more attractive.

In light of this, it's understandable that Zhejiang Giuseppe Garment'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.

What We Can Learn From Zhejiang Giuseppe Garment's P/E?

Even after such a strong price move, Zhejiang Giuseppe Garment's P/E still trails the rest of the market significantly. 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.

As we suspected, our examination of Zhejiang Giuseppe Garment'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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Zhejiang Giuseppe Garment that you should be aware of.

You might be able to find a better investment than Zhejiang Giuseppe Garment. 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.