Shenzhen Bluetrum Technology Co., Ltd. (SHSE:688332) Stocks Shoot Up 35% But Its P/E Still Looks Reasonable

Shenzhen Bluetrum Technology Co., Ltd. (SHSE:688332) shares have continued their recent momentum with a 35% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 5.6% isn't as impressive.

Even after such a large jump in price, it's still not a stretch to say that Shenzhen Bluetrum Technology's price-to-earnings (or "P/E") ratio of 36.5x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 36x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been pleasing for Shenzhen Bluetrum Technology as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient 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 not quite in favour.

Check out our latest analysis for Shenzhen Bluetrum Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Bluetrum Technology.

Is There Some Growth For Shenzhen Bluetrum Technology?

The only time you'd be comfortable seeing a P/E like Shenzhen Bluetrum Technology's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 19% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 15% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 39% as estimated by the three analysts watching the company. That's shaping up to be similar to the 41% growth forecast for the broader market.

In light of this, it's understandable that Shenzhen Bluetrum Technology's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Shenzhen Bluetrum Technology's P/E?

Shenzhen Bluetrum Technology appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

As we suspected, our examination of Shenzhen Bluetrum Technology's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Shenzhen Bluetrum Technology, and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.