Northking Information Technology Co., Ltd.'s (SZSE:002987) Price Is Right But Growth Is Lacking After Shares Rocket 26%

Those holding Northking Information Technology Co., Ltd. (SZSE:002987) shares would be relieved that the share price has rebounded 26% 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 24% over that time.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Northking Information Technology as an attractive investment with its 20.9x 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 limited.

Northking Information Technology 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 degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Northking Information Technology

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

Is There Any Growth For Northking Information Technology?

The only time you'd be truly comfortable seeing a P/E as low as Northking Information Technology's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. As a result, it also grew EPS by 21% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 16% each year during the coming three years according to the two analysts following the company. That's shaping up to be materially lower than the 22% per year growth forecast for the broader market.

With this information, we can see why Northking Information Technology is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Northking Information Technology's P/E?

Despite Northking Information Technology's shares building up a head of steam, its P/E still lags 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.

As we suspected, our examination of Northking Information Technology's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

Before you settle on your opinion, we've discovered 1 warning sign for Northking Information Technology that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.