Not Many Are Piling Into Guangdong Ellington Electronics Technology Co.,Ltd (SHSE:603328) Just Yet

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 27x, you may consider Guangdong Ellington Electronics Technology Co.,Ltd (SHSE:603328) as an attractive investment with its 17.4x 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 quite advantageous for Guangdong Ellington Electronics TechnologyLtd as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Guangdong Ellington Electronics TechnologyLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Guangdong Ellington Electronics TechnologyLtd's earnings, revenue and cash flow.

How Is Guangdong Ellington Electronics TechnologyLtd's Growth Trending?

In order to justify its P/E ratio, Guangdong Ellington Electronics TechnologyLtd would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 31%. The latest three year period has also seen an excellent 146% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's about the same on an annualised basis.

In light of this, it's peculiar that Guangdong Ellington Electronics TechnologyLtd's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

What We Can Learn From Guangdong Ellington Electronics TechnologyLtd's P/E?

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 Guangdong Ellington Electronics TechnologyLtd revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Guangdong Ellington Electronics TechnologyLtd (of which 1 is concerning!) you should know about.

Of course, you might also be able to find a better stock than Guangdong Ellington Electronics TechnologyLtd. 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.