Zhuzhou Times New Material Technology Co., Ltd.'s (SHSE:600458) Shares Leap 37% Yet They're Still Not Telling The Full Story

Zhuzhou Times New Material Technology Co., Ltd. (SHSE:600458) shareholders have had their patience rewarded with a 37% share price jump in the last month. Looking further back, the 25% 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, Zhuzhou Times New Material Technology's price-to-earnings (or "P/E") ratio of 24.5x 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.

There hasn't been much to differentiate Zhuzhou Times New Material Technology's and the market's retreating earnings lately. It might be that many expect the company's earnings performance to degrade further, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. In saying that, existing shareholders may feel hopeful about the share price if the company's earnings continue tracking the market.

See our latest analysis for Zhuzhou Times New Material Technology

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How Is Zhuzhou Times New Material Technology's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Zhuzhou Times New Material Technology's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 1.4% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 22% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 31% each year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 18% each year growth forecast for the broader market.

In light of this, it's peculiar that Zhuzhou Times New Material Technology's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Zhuzhou Times New Material Technology's P/E?

The latest share price surge wasn't enough to lift Zhuzhou Times New Material Technology's P/E close to the market median. 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.

Our examination of Zhuzhou Times New Material Technology's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. 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.

You always need to take note of risks, for example - Zhuzhou Times New Material Technology has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Zhuzhou Times New Material Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.