A Piece Of The Puzzle Missing From Zhejiang Jiecang Linear Motion Technology Co.,Ltd.'s (SHSE:603583) 26% Share Price Climb

Zhejiang Jiecang Linear Motion Technology Co.,Ltd. (SHSE:603583) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 86% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Zhejiang Jiecang Linear Motion TechnologyLtd's price-to-earnings (or "P/E") ratio of 37.8x is worth a mention when the median P/E in China is similar at about 35x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been pleasing for Zhejiang Jiecang Linear Motion TechnologyLtd as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Zhejiang Jiecang Linear Motion TechnologyLtd

Want the full picture on analyst estimates for the company? Then our free report on Zhejiang Jiecang Linear Motion TechnologyLtd will help you uncover what's on the horizon.

How Is Zhejiang Jiecang Linear Motion TechnologyLtd's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Zhejiang Jiecang Linear Motion TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 37% gain to the company's bottom line. As a result, it also grew EPS by 12% 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 47% during the coming year according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

With this information, we find it interesting that Zhejiang Jiecang Linear Motion TechnologyLtd is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now Zhejiang Jiecang Linear Motion TechnologyLtd's P/E is also back up 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.

We've established that Zhejiang Jiecang Linear Motion TechnologyLtd currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Zhejiang Jiecang Linear Motion TechnologyLtd with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than Zhejiang Jiecang Linear Motion TechnologyLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.