Zhenjiang Dongfang Electric Heating Technology Co.,Ltd (SZSE:300217) Stock Rockets 26% But Many Are Still Ignoring The Company

Those holding Zhenjiang Dongfang Electric Heating Technology Co.,Ltd (SZSE:300217) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking further back, the 18% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, Zhenjiang Dongfang Electric Heating TechnologyLtd's price-to-earnings (or "P/E") ratio of 24.4x 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 39x and even P/E's above 75x 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.

Zhenjiang Dongfang Electric Heating TechnologyLtd has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Zhenjiang Dongfang Electric Heating TechnologyLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhenjiang Dongfang Electric Heating TechnologyLtd.

How Is Zhenjiang Dongfang Electric Heating TechnologyLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Zhenjiang Dongfang Electric Heating TechnologyLtd's is when the company's growth is on track to lag the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 48%. Still, the latest three year period has seen an excellent 232% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 35% over the next year. With the market predicted to deliver 37% growth , the company is positioned for a comparable earnings result.

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

What We Can Learn From Zhenjiang Dongfang Electric Heating TechnologyLtd's P/E?

Zhenjiang Dongfang Electric Heating TechnologyLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Zhenjiang Dongfang Electric Heating TechnologyLtd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Zhenjiang Dongfang Electric Heating TechnologyLtd you should be aware of.

You might be able to find a better investment than Zhenjiang Dongfang Electric Heating TechnologyLtd. 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.