Investors Still Aren't Entirely Convinced By Wuxi DK Electronic Materials Co.,Ltd.'s (SZSE:300842) Earnings Despite 49% Price Jump

Wuxi DK Electronic Materials Co.,Ltd. (SZSE:300842) shares have had a really impressive month, gaining 49% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 8.1% isn't as impressive.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may still consider Wuxi DK Electronic MaterialsLtd as an attractive investment with its 17.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Wuxi DK Electronic MaterialsLtd as its earnings have risen in spite of the market's earnings going into reverse. 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.

See our latest analysis for Wuxi DK Electronic MaterialsLtd

Want the full picture on analyst estimates for the company? Then our free report on Wuxi DK Electronic MaterialsLtd will help you uncover what's on the horizon.

How Is Wuxi DK Electronic MaterialsLtd's Growth Trending?

In order to justify its P/E ratio, Wuxi DK Electronic MaterialsLtd would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 168% last year. The strong recent performance means it was also able to grow EPS by 305% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 27% each year over the next three years. With the market only predicted to deliver 19% each year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Wuxi DK Electronic MaterialsLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Despite Wuxi DK Electronic MaterialsLtd's shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Wuxi DK Electronic MaterialsLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Wuxi DK Electronic MaterialsLtd (at least 1 which is a bit unpleasant), and understanding these should be part of your investment process.

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

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

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.