Luoyang Jianlong Micro-nano New Material Co., Ltd (SHSE:688357) Stock Catapults 38% Though Its Price And Business Still Lag The Market

Luoyang Jianlong Micro-nano New Material Co., Ltd (SHSE:688357) shares have had a really impressive month, gaining 38% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 37% over that time.

In spite of the firm bounce in price, Luoyang Jianlong Micro-nano New Material may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.3x, since almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 64x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings that are retreating more than the market's of late, Luoyang Jianlong Micro-nano New Material has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. 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.

Check out our latest analysis for Luoyang Jianlong Micro-nano New Material

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Luoyang Jianlong Micro-nano New Material.

Is There Any Growth For Luoyang Jianlong Micro-nano New Material?

Luoyang Jianlong Micro-nano New Material'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.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 32% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 16% per year over the next three years. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

With this information, we can see why Luoyang Jianlong Micro-nano New Material is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

The latest share price surge wasn't enough to lift Luoyang Jianlong Micro-nano New Material's P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Luoyang Jianlong Micro-nano New Material 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. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Luoyang Jianlong Micro-nano New Material that you need to take into consideration.

If you're unsure about the strength of Luoyang Jianlong Micro-nano New Material's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.