Improved Earnings Required Before Zhejiang JIULI Hi-tech Metals Co.,Ltd (SZSE:002318) Shares Find Their Feet

With a price-to-earnings (or "P/E") ratio of 15.4x Zhejiang JIULI Hi-tech Metals Co.,Ltd (SZSE:002318) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 39x and even P/E's higher than 75x 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 so limited.

Zhejiang JIULI Hi-tech MetalsLtd has been struggling lately as its earnings have declined faster than most other companies. 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. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Zhejiang JIULI Hi-tech MetalsLtd

Keen to find out how analysts think Zhejiang JIULI Hi-tech MetalsLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Zhejiang JIULI Hi-tech MetalsLtd?

The only time you'd be truly comfortable seeing a P/E as depressed as Zhejiang JIULI Hi-tech MetalsLtd's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 5.9%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 66% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 11% during the coming year according to the five analysts following the company. Meanwhile, the rest of the market is forecast to expand by 37%, which is noticeably more attractive.

With this information, we can see why Zhejiang JIULI Hi-tech MetalsLtd 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 Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Zhejiang JIULI Hi-tech MetalsLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Zhejiang JIULI Hi-tech MetalsLtd that you should be aware of.

You might be able to find a better investment than Zhejiang JIULI Hi-tech MetalsLtd. 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.