Investors Still Aren't Entirely Convinced By Zhangjiagang Guangda Special Material Co., Ltd.'s (SHSE:688186) Earnings Despite 36% Price Jump

Zhangjiagang Guangda Special Material Co., Ltd. (SHSE:688186) shareholders have had their patience rewarded with a 36% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 54%.

Although its price has surged higher, there still wouldn't be many who think Zhangjiagang Guangda Special Material's price-to-earnings (or "P/E") ratio of 42.6x is worth a mention when the median P/E in China is similar at about 39x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been pleasing for Zhangjiagang Guangda Special Material as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Zhangjiagang Guangda Special Material

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhangjiagang Guangda Special Material.

How Is Zhangjiagang Guangda Special Material's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Zhangjiagang Guangda Special Material's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 9.8% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 42% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 166% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 37% growth forecast for the broader market.

With this information, we find it interesting that Zhangjiagang Guangda Special Material is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Zhangjiagang Guangda Special Material's P/E

Its shares have lifted substantially and now Zhangjiagang Guangda Special Material's P/E is also back up to the market median. 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 Zhangjiagang Guangda Special Material currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Zhangjiagang Guangda Special Material.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.