Aerospace Intelligent Manufacturing Technology Co., Ltd.'s (SZSE:300446) Shares Bounce 35% But Its Business Still Trails The Market

Aerospace Intelligent Manufacturing Technology Co., Ltd. (SZSE:300446) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Looking further back, the 12% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Aerospace Intelligent Manufacturing Technology as an attractive investment with its 19.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for Aerospace Intelligent Manufacturing Technology as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Aerospace Intelligent Manufacturing Technology

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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Aerospace Intelligent Manufacturing Technology would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 74%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Aerospace Intelligent Manufacturing Technology is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The latest share price surge wasn't enough to lift Aerospace Intelligent Manufacturing Technology's P/E close to the market median. 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 Aerospace Intelligent Manufacturing Technology revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Aerospace Intelligent Manufacturing Technology (of which 1 doesn't sit too well with us!) you should know about.

If these risks are making you reconsider your opinion on Aerospace Intelligent Manufacturing Technology, 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.