Even With A 29% Surge, Cautious Investors Are Not Rewarding Fujian Apex Software Co.,LTD's (SHSE:603383) Performance Completely

Those holding Fujian Apex Software Co.,LTD (SHSE:603383) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 40% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Fujian Apex SoftwareLTD's P/E ratio of 29.1x, since the median price-to-earnings (or "P/E") ratio in China is also close to 28x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Fujian Apex SoftwareLTD certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. 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 Fujian Apex SoftwareLTD

Keen to find out how analysts think Fujian Apex SoftwareLTD's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Fujian Apex SoftwareLTD's to be considered reasonable.

Retrospectively, the last year delivered a decent 12% gain to the company's bottom line. The latest three year period has also seen an excellent 84% overall rise in EPS, aided somewhat by its short-term performance. 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 21% per year during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader market.

With this information, we find it interesting that Fujian Apex SoftwareLTD is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Fujian Apex SoftwareLTD's P/E?

Its shares have lifted substantially and now Fujian Apex SoftwareLTD's P/E is also back up to the market median. 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.

Our examination of Fujian Apex SoftwareLTD's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You need to take note of risks, for example - Fujian Apex SoftwareLTD has 3 warning signs (and 1 which can't be ignored) we think you should know about.

If these risks are making you reconsider your opinion on Fujian Apex SoftwareLTD, 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.