Zhejiang JIULI Hi-tech Metals Co.,Ltd's (SZSE:002318) Prospects Need A Boost To Lift Shares

With a price-to-earnings (or "P/E") ratio of 14.3x 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 32x and even P/E's higher than 59x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been advantageous for Zhejiang JIULI Hi-tech MetalsLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Zhejiang JIULI Hi-tech MetalsLtd

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What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Zhejiang JIULI Hi-tech MetalsLtd would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 42% last year. Pleasingly, EPS has also lifted 103% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 5.4% during the coming year according to the five analysts following the company. With the market predicted to deliver 37% growth , that's a disappointing outcome.

With this information, we are not surprised that Zhejiang JIULI Hi-tech MetalsLtd is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

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 outlook for shrinking earnings 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. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Zhejiang JIULI Hi-tech MetalsLtd (of which 1 is significant!) you should know about.

If these risks are making you reconsider your opinion on Zhejiang JIULI Hi-tech MetalsLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.