Improved Earnings Required Before Jiangsu Boiln Plastics Co., Ltd. (SZSE:301003) Stock's 37% Jump Looks Justified

Those holding Jiangsu Boiln Plastics Co., Ltd. (SZSE:301003) shares would be relieved that the share price has rebounded 37% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

Even after such a large jump in price, Jiangsu Boiln Plastics' price-to-earnings (or "P/E") ratio of 18.2x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 55x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

It looks like earnings growth has deserted Jiangsu Boiln Plastics recently, which is not something to boast about. It might be that many expect the uninspiring earnings performance to worsen, 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.

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What Are Growth Metrics Telling Us About The Low P/E?

Jiangsu Boiln Plastics' 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, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 22% overall from three years ago. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 41% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that Jiangsu Boiln Plastics' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

Jiangsu Boiln Plastics' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Jiangsu Boiln Plastics maintains its low P/E on the weakness of its sliding earnings over the medium-term, 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 the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Jiangsu Boiln Plastics has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Jiangsu Boiln Plastics, 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.