Wuxi Paike New Materials Technology Co.,Ltd.'s (SHSE:605123) Share Price Boosted 26% But Its Business Prospects Need A Lift Too

Those holding Wuxi Paike New Materials Technology Co.,Ltd. (SHSE:605123) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 45% in the last twelve months.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Wuxi Paike New Materials TechnologyLtd as an attractive investment with its 15.9x 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 its earnings growth in positive territory compared to the declining earnings of most other companies, Wuxi Paike New Materials TechnologyLtd has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Wuxi Paike New Materials TechnologyLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Wuxi Paike New Materials TechnologyLtd.

Is There Any Growth For Wuxi Paike New Materials TechnologyLtd?

The only time you'd be truly comfortable seeing a P/E as low as Wuxi Paike New Materials TechnologyLtd's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. Pleasingly, EPS has also lifted 135% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 32% as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

With this information, we can see why Wuxi Paike New Materials TechnologyLtd 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.

The Bottom Line On Wuxi Paike New Materials TechnologyLtd's P/E

Despite Wuxi Paike New Materials TechnologyLtd's shares building up a head of steam, its P/E still lags most other companies. 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 Wuxi Paike New Materials TechnologyLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Wuxi Paike New Materials TechnologyLtd (1 makes us a bit uncomfortable!) that you need to be mindful of.

You might be able to find a better investment than Wuxi Paike New Materials TechnologyLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.