Earnings Working Against Nanjing Julong Science & Technology Co.,LTD's (SZSE:300644) Share Price Following 25% Dive

Nanjing Julong Science & Technology Co.,LTD (SZSE:300644) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. The last month has meant the stock is now only up 5.3% during the last year.

Following the heavy fall in price, Nanjing Julong Science & TechnologyLTD may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 29.3x, since almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 65x 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 limited.

For instance, Nanjing Julong Science & TechnologyLTD's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Nanjing Julong Science & TechnologyLTD

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Is There Any Growth For Nanjing Julong Science & TechnologyLTD?

Nanjing Julong 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.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 5.2%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 83% 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.

Comparing that to the market, which is predicted to deliver 38% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Nanjing Julong Science & TechnologyLTD's P/E sits below the majority of other companies. 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 Bottom Line On Nanjing Julong Science & TechnologyLTD's P/E

Nanjing Julong Science & TechnologyLTD's recently weak share price has pulled its P/E below most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Nanjing Julong Science & TechnologyLTD maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Nanjing Julong Science & TechnologyLTD that you should be aware of.

If you're unsure about the strength of Nanjing Julong Science & TechnologyLTD's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.