There's No Escaping Nantong JiangTian Chemical Co., Ltd.'s (SZSE:300927) Muted Earnings Despite A 34% Share Price Rise

Those holding Nantong JiangTian Chemical Co., Ltd. (SZSE:300927) shares would be relieved that the share price has rebounded 34% 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 37% over that time.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Nantong JiangTian Chemical as an attractive investment with its 24.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For example, consider that Nantong JiangTian Chemical's financial performance has been poor lately as its earnings have been in decline. 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.

See our latest analysis for Nantong JiangTian Chemical

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Nantong JiangTian Chemical will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Nantong JiangTian Chemical would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 7.0% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 2.8% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's an unpleasant look.

With this information, we are not surprised that Nantong JiangTian Chemical is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On Nantong JiangTian Chemical's P/E

The latest share price surge wasn't enough to lift Nantong JiangTian Chemical's P/E close to the market median. 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.

As we suspected, our examination of Nantong JiangTian Chemical revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Nantong JiangTian Chemical (at least 1 which is significant), and understanding these should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.