Zhejiang Cayi Vacuum Container Co., Ltd. (SZSE:301004) Stock Catapults 39% Though Its Price And Business Still Lag The Market

Zhejiang Cayi Vacuum Container Co., Ltd. (SZSE:301004) shares have continued their recent momentum with a 39% gain in the last month alone. The annual gain comes to 171% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Zhejiang Cayi Vacuum Container's price-to-earnings (or "P/E") ratio of 20.2x 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 34x and even P/E's above 67x are quite common. However, the P/E might be 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 Cayi Vacuum Container 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Zhejiang Cayi Vacuum Container

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

Is There Any Growth For Zhejiang Cayi Vacuum Container?

There's an inherent assumption that a company should underperform the market for P/E ratios like Zhejiang Cayi Vacuum Container's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 77% gain to the company's bottom line. Pleasingly, EPS has also lifted 562% 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 three years should generate growth of 16% per annum as estimated by the three analysts watching the company. With the market predicted to deliver 18% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Zhejiang Cayi Vacuum Container'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 Bottom Line On Zhejiang Cayi Vacuum Container's P/E

Despite Zhejiang Cayi Vacuum Container's shares building up a head of steam, its P/E still lags most other companies. 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 Zhejiang Cayi Vacuum Container's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. 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 2 warning signs for Zhejiang Cayi Vacuum Container (1 makes us a bit uncomfortable!) 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.