Nanjing Julong Science & Technology Co.,LTD (SZSE:300644) Held Back By Insufficient Growth Even After Shares Climb 32%

Those holding Nanjing Julong Science & Technology Co.,LTD (SZSE:300644) shares would be relieved that the share price has rebounded 32% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

Even after such a large jump in price, Nanjing Julong Science & TechnologyLTD may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.5x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Nanjing Julong Science & TechnologyLTD certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, 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.

See our latest analysis for Nanjing Julong Science & TechnologyLTD

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Nanjing Julong Science & TechnologyLTD's earnings, revenue and cash flow.

Is There Any Growth For Nanjing Julong Science & TechnologyLTD?

There's an inherent assumption that a company should underperform the market for P/E ratios like Nanjing Julong Science & TechnologyLTD's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 168%. EPS has also lifted 30% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 41% 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 Nanjing Julong Science & TechnologyLTD is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

Nanjing Julong Science & TechnologyLTD's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Nanjing Julong Science & TechnologyLTD 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for Nanjing Julong Science & TechnologyLTD you should be aware of.

If these risks are making you reconsider your opinion on Nanjing Julong 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.