Ningbo David Medical Device Co., Ltd.'s (SZSE:300314) Shares Leap 31% Yet They're Still Not Telling The Full Story

Ningbo David Medical Device Co., Ltd. (SZSE:300314) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

In spite of the firm bounce in price, Ningbo David Medical Device may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 23.2x, 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Ningbo David Medical Device has been doing quite well of late. 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.

Check out our latest analysis for Ningbo David Medical Device

Keen to find out how analysts think Ningbo David Medical Device's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Ningbo David Medical Device's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Ningbo David Medical Device's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 62%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 4.6% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 78% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

With this information, we find it odd that Ningbo David Medical Device is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Despite Ningbo David Medical Device's shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that Ningbo David Medical Device currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Ningbo David Medical Device that you should be aware 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.