There's No Escaping Universal Scientific Industrial (Shanghai) Co., Ltd.'s (SHSE:601231) Muted Earnings Despite A 25% Share Price Rise

Despite an already strong run, Universal Scientific Industrial (Shanghai) Co., Ltd. (SHSE:601231) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 41%.

Although its price has surged higher, Universal Scientific Industrial (Shanghai)'s price-to-earnings (or "P/E") ratio of 25.8x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 39x and even P/E's above 75x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Universal Scientific Industrial (Shanghai) has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Universal Scientific Industrial (Shanghai)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Universal Scientific Industrial (Shanghai).

How Is Universal Scientific Industrial (Shanghai)'s Growth Trending?

In order to justify its P/E ratio, Universal Scientific Industrial (Shanghai) would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 11% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 14% during the coming year according to the six analysts following the company. With the market predicted to deliver 37% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Universal Scientific Industrial (Shanghai) 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.

The Bottom Line On Universal Scientific Industrial (Shanghai)'s P/E

The latest share price surge wasn't enough to lift Universal Scientific Industrial (Shanghai)'s P/E close to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Universal Scientific Industrial (Shanghai)'s analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Universal Scientific Industrial (Shanghai) you should know about.

Of course, you might also be able to find a better stock than Universal Scientific Industrial (Shanghai). So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.