Investors Give Suzhou Maxwell Technologies Co., Ltd. (SZSE:300751) Shares A 25% Hiding

To the annoyance of some shareholders, Suzhou Maxwell Technologies Co., Ltd. (SZSE:300751) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 39% in that time.

Following the heavy fall in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Suzhou Maxwell Technologies as an attractive investment with its 23.4x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Suzhou Maxwell Technologies has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.

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How Is Suzhou Maxwell Technologies' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Suzhou Maxwell Technologies' to be considered reasonable.

Retrospectively, the last year delivered a decent 7.2% gain to the company's bottom line. Pleasingly, EPS has also lifted 87% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 28% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 20% each year growth forecast for the broader market.

With this information, we find it odd that Suzhou Maxwell Technologies is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Suzhou Maxwell Technologies' P/E

Suzhou Maxwell Technologies' recently weak share price has pulled its P/E below most other companies. 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.

Our examination of Suzhou Maxwell Technologies' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you settle on your opinion, we've discovered 3 warning signs for Suzhou Maxwell Technologies (1 makes us a bit uncomfortable!) that you should be aware of.

If these risks are making you reconsider your opinion on Suzhou Maxwell Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.