Zhejiang Sunoren Solar Technology Co.,Ltd. (SHSE:603105) Looks Inexpensive After Falling 25% But Perhaps Not Attractive Enough

Zhejiang Sunoren Solar Technology Co.,Ltd. (SHSE:603105) shares have had a horrible month, losing 25% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

In spite of the heavy fall in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may still consider Zhejiang Sunoren Solar TechnologyLtd as an attractive investment with its 18.1x 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.

Zhejiang Sunoren Solar TechnologyLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Zhejiang Sunoren Solar TechnologyLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Sunoren Solar TechnologyLtd.

How Is Zhejiang Sunoren Solar TechnologyLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Zhejiang Sunoren Solar TechnologyLtd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a decent 3.0% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 182% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 20% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 24% each year, which is noticeably more attractive.

In light of this, it's understandable that Zhejiang Sunoren Solar 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 Key Takeaway

The softening of Zhejiang Sunoren Solar TechnologyLtd's shares means its P/E is now sitting at a pretty low level. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Zhejiang Sunoren Solar TechnologyLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for Zhejiang Sunoren Solar TechnologyLtd you should be aware of, and 1 of them is a bit unpleasant.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com