Ningbo Exciton Technology Co., Ltd.'s (SZSE:300566) Shares Bounce 33% But Its Business Still Trails The Market

Ningbo Exciton Technology Co., Ltd. (SZSE:300566) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 7.5% isn't as impressive.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Ningbo Exciton Technology as an attractive investment with its 21.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Ningbo Exciton Technology has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Ningbo Exciton Technology

Keen to find out how analysts think Ningbo Exciton Technology's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Ningbo Exciton Technology's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Ningbo Exciton Technology's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 218% last year. The latest three year period has also seen a 22% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good 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 annum over the next three years. With the market predicted to deliver 19% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Ningbo Exciton Technology's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Ningbo Exciton Technology's P/E?

Ningbo Exciton Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that Ningbo Exciton Technology 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 3 warning signs for Ningbo Exciton Technology that you should be aware of.

You might be able to find a better investment than Ningbo Exciton Technology. 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.