New DaZheng Property Group Co., LTD (SZSE:002968) Shares Fly 38% But Investors Aren't Buying For Growth

New DaZheng Property Group Co., LTD (SZSE:002968) shareholders have had their patience rewarded with a 38% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 36% 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 33x, you may still consider New DaZheng Property Group as an attractive investment with its 17.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

While the market has experienced earnings growth lately, New DaZheng Property Group's earnings have gone into reverse gear, which is not great. 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 New DaZheng Property Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on New DaZheng Property Group.

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

New DaZheng Property Group's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 7.4% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to climb by 16% each year during the coming three years according to the five analysts following the company. That's shaping up to be materially lower than the 26% per annum growth forecast for the broader market.

With this information, we can see why New DaZheng Property Group 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 Bottom Line On New DaZheng Property Group's P/E

The latest share price surge wasn't enough to lift New DaZheng Property Group'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.

We've established that New DaZheng Property Group 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with New DaZheng Property Group, and understanding these should be part of your investment process.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.