Jiangsu Pacific Quartz Co., Ltd (SHSE:603688) Not Doing Enough For Some Investors As Its Shares Slump 32%

Jiangsu Pacific Quartz Co., Ltd (SHSE:603688) shareholders won't be pleased to see that the share price has had a very rough month, dropping 32% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 48% in that time.

After such a large drop in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider Jiangsu Pacific Quartz as a highly attractive investment with its 4.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Jiangsu Pacific Quartz 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 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.

Check out our latest analysis for Jiangsu Pacific Quartz

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Is There Any Growth For Jiangsu Pacific Quartz?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Jiangsu Pacific Quartz's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 146% last year. The strong recent performance means it was also able to grow EPS by 2,030% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 3.9% per year during the coming three years according to the four analysts following the company. With the market predicted to deliver 25% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Jiangsu Pacific Quartz's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Jiangsu Pacific Quartz's P/E looks about as weak as its stock price lately. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Jiangsu Pacific Quartz 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Jiangsu Pacific Quartz (1 can't be ignored!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Jiangsu Pacific Quartz. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.