Ningbo Bohui Chemical Technology Co.,Ltd's (SZSE:300839) Shares Bounce 26% But Its Business Still Trails The Market

Ningbo Bohui Chemical Technology Co.,Ltd (SZSE:300839) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 39% in the last twelve months.

Even after such a large jump in price, Ningbo Bohui Chemical TechnologyLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.4x, 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. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Ningbo Bohui Chemical TechnologyLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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.

See our latest analysis for Ningbo Bohui Chemical TechnologyLtd

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Is There Any Growth For Ningbo Bohui Chemical TechnologyLtd?

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

If we review the last year of earnings growth, the company posted a terrific increase of 66%. The latest three year period has also seen an excellent 60% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 25% over the next year. Meanwhile, the rest of the market is forecast to expand by 41%, which is noticeably more attractive.

In light of this, it's understandable that Ningbo Bohui Chemical TechnologyLtd'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.

The Final Word

Even after such a strong price move, Ningbo Bohui Chemical TechnologyLtd's P/E still trails the rest of the market significantly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Ningbo Bohui Chemical TechnologyLtd 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. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Ningbo Bohui Chemical TechnologyLtd you should be aware of, and 1 of them doesn't sit too well with us.

Of course, you might also be able to find a better stock than Ningbo Bohui Chemical TechnologyLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.