Even With A 26% Surge, Cautious Investors Are Not Rewarding Beijing Yuanliu Hongyuan Electronic Technology Co., Ltd.'s (SHSE:603267) Performance Completely

Those holding Beijing Yuanliu Hongyuan Electronic Technology Co., Ltd. (SHSE:603267) 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. But the last month did very little to improve the 59% share price decline over the last year.

Although its price has surged higher, Beijing Yuanliu Hongyuan Electronic Technology's price-to-earnings (or "P/E") ratio of 22.5x 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 30x and even P/E's above 55x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times haven't been advantageous for Beijing Yuanliu Hongyuan Electronic Technology as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. 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.

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Does Growth Match The Low P/E?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 54%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 6.2% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 68% over the next year. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Beijing Yuanliu Hongyuan Electronic Technology 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 Final Word

Beijing Yuanliu Hongyuan Electronic Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that Beijing Yuanliu Hongyuan Electronic Technology currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Beijing Yuanliu Hongyuan Electronic Technology is showing 2 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Beijing Yuanliu Hongyuan Electronic Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.