Yantai Jereh Oilfield Services Group Co., Ltd.'s (SZSE:002353) Shares Bounce 26% But Its Business Still Trails The Market

Yantai Jereh Oilfield Services Group Co., Ltd. (SZSE:002353) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 3.3% isn't as attractive.

Although its price has surged higher, Yantai Jereh Oilfield Services Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12.6x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Yantai Jereh Oilfield Services Group 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.

View our latest analysis for Yantai Jereh Oilfield Services Group

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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 Yantai Jereh Oilfield Services Group's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 6.2%. Pleasingly, EPS has also lifted 37% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 19% as estimated by the analysts watching the company. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Yantai Jereh Oilfield Services Group is trading at a P/E lower than the market. 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 Yantai Jereh Oilfield Services Group's P/E?

Yantai Jereh Oilfield Services Group's recent share price jump still sees its P/E sitting firmly flat on the ground. 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 Yantai Jereh Oilfield Services Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Yantai Jereh Oilfield Services Group.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.