Marssenger Kitchenware Co., Ltd. (SZSE:300894) Stock Rockets 29% As Investors Are Less Pessimistic Than Expected

The Marssenger Kitchenware Co., Ltd. (SZSE:300894) share price has done very well over the last month, posting an excellent gain of 29%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 39% over that time.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Marssenger Kitchenware's P/E ratio of 29.1x, since the median price-to-earnings (or "P/E") ratio in China is also close to 32x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Marssenger Kitchenware hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Check out our latest analysis for Marssenger Kitchenware

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How Is Marssenger Kitchenware's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Marssenger Kitchenware's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 23%. The last three years don't look nice either as the company has shrunk EPS by 39% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the nine analysts watching the company. That's shaping up to be materially lower than the 21% per year growth forecast for the broader market.

In light of this, it's curious that Marssenger Kitchenware's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Marssenger Kitchenware's P/E?

Its shares have lifted substantially and now Marssenger Kitchenware's P/E is also back up to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Marssenger Kitchenware currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Marssenger Kitchenware (1 is a bit concerning!) that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.