Suzhou Etron Technologies Co.,Ltd. (SHSE:603380) Surges 30% Yet Its Low P/E Is No Reason For Excitement

Suzhou Etron Technologies Co.,Ltd. (SHSE:603380) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Suzhou Etron TechnologiesLtd as an attractive investment with its 23.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For example, consider that Suzhou Etron TechnologiesLtd's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Suzhou Etron TechnologiesLtd

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 Suzhou Etron TechnologiesLtd's earnings, revenue and cash flow.

How Is Suzhou Etron TechnologiesLtd's Growth Trending?

In order to justify its P/E ratio, Suzhou Etron TechnologiesLtd would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 25%. This means it has also seen a slide in earnings over the longer-term as EPS is down 12% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 42% shows it's an unpleasant look.

With this information, we are not surprised that Suzhou Etron TechnologiesLtd is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

Despite Suzhou Etron TechnologiesLtd'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.

We've established that Suzhou Etron TechnologiesLtd maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 1 warning sign for Suzhou Etron TechnologiesLtd that you need to take into consideration.

Of course, you might also be able to find a better stock than Suzhou Etron TechnologiesLtd. 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.