Chengdu Guibao Science & Technology Co.,Ltd. (SZSE:300019) Stock Rockets 27% But Many Are Still Ignoring The Company

Chengdu Guibao Science & Technology Co.,Ltd. (SZSE:300019) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 32% in the last year.

Although its price has surged higher, Chengdu Guibao Science & TechnologyLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 28.8x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 71x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Chengdu Guibao Science & TechnologyLtd 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.

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How Is Chengdu Guibao Science & TechnologyLtd's Growth Trending?

Chengdu Guibao Science & TechnologyLtd'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.

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 19%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 34% as estimated by the dual analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 37%, which is not materially different.

In light of this, it's peculiar that Chengdu Guibao Science & TechnologyLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Chengdu Guibao Science & TechnologyLtd's P/E

Chengdu Guibao Science & TechnologyLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

Our examination of Chengdu Guibao Science & TechnologyLtd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You always need to take note of risks, for example - Chengdu Guibao Science & TechnologyLtd has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Chengdu Guibao Science & TechnologyLtd, 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.