Shandong Jinjing Science & Technology Stock Co.,Ltd's (SHSE:600586) Shares Lagging The Market But So Is The Business

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider Shandong Jinjing Science & Technology Stock Co.,Ltd (SHSE:600586) as an attractive investment with its 21.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Shandong Jinjing Science & Technology StockLtd has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, 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. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Shandong Jinjing Science & Technology StockLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shandong Jinjing Science & Technology StockLtd.

What Are Growth Metrics Telling Us About The Low P/E?

Shandong Jinjing Science & Technology StockLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 6.6%. As a result, earnings from three years ago have also fallen 76% 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 23% during the coming year according to the two analysts following the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is noticeably more attractive.

In light of this, it's understandable that Shandong Jinjing Science & Technology StockLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Shandong Jinjing Science & Technology StockLtd 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shandong Jinjing Science & Technology StockLtd you should know about.

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.