Chongqing Zaisheng Technology Co., Ltd.'s (SHSE:603601) Shares Leap 29% Yet They're Still Not Telling The Full Story

Chongqing Zaisheng Technology Co., Ltd. (SHSE:603601) shareholders are no doubt pleased to see that the share price has bounced 29% 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 35% in the last twelve months.

In spite of the firm bounce in price, Chongqing Zaisheng Technology's price-to-earnings (or "P/E") ratio of 28.6x 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 32x and even P/E's above 59x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times haven't been advantageous for Chongqing Zaisheng Technology as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. 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 Chongqing Zaisheng Technology

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

How Is Chongqing Zaisheng Technology's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Chongqing Zaisheng Technology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 40% 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 66% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 117% over the next year. Meanwhile, the rest of the market is forecast to only expand by 40%, which is noticeably less attractive.

In light of this, it's peculiar that Chongqing Zaisheng Technology's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Chongqing Zaisheng Technology's P/E

Chongqing Zaisheng Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

Our examination of Chongqing Zaisheng 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. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

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

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.