G-bits Network Technology (Xiamen) Co., Ltd. (SHSE:603444) Held Back By Insufficient Growth Even After Shares Climb 26%

G-bits Network Technology (Xiamen) Co., Ltd. (SHSE:603444) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 52% share price drop in the last twelve months.

In spite of the firm bounce in price, G-bits Network Technology (Xiamen)'s price-to-earnings (or "P/E") ratio of 13.2x might still make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 28x and even P/E's above 53x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

G-bits Network Technology (Xiamen) could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for G-bits Network Technology (Xiamen)

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How Is G-bits Network Technology (Xiamen)'s Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like G-bits Network Technology (Xiamen)'s to be considered reasonable.

Retrospectively, the last year delivered a frustrating 25% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 1.9% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 7.9% each year over the next three years. That's shaping up to be materially lower than the 24% per year growth forecast for the broader market.

With this information, we can see why G-bits Network Technology (Xiamen) is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

G-bits Network Technology (Xiamen)'s recent share price jump still sees its P/E sitting firmly flat on the ground. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that G-bits Network Technology (Xiamen) maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for G-bits Network Technology (Xiamen) with six simple checks.

If you're unsure about the strength of G-bits Network Technology (Xiamen)'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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