A Piece Of The Puzzle Missing From Shenzhen Newway Photomask Making Co., Ltd's (SHSE:688401) 28% Share Price Climb

Shenzhen Newway Photomask Making Co., Ltd (SHSE:688401) shareholders have had their patience rewarded with a 28% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 28%.

In spite of the firm bounce in price, Shenzhen Newway Photomask Making may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 33x, since almost half of all companies in China have P/E ratios greater than 39x and even P/E's higher than 75x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Shenzhen Newway Photomask Making as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Shenzhen Newway Photomask Making

Want the full picture on analyst estimates for the company? Then our free report on Shenzhen Newway Photomask Making will help you uncover what's on the horizon.

Is There Any Growth For Shenzhen Newway Photomask Making?

In order to justify its P/E ratio, Shenzhen Newway Photomask Making would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 30% last year. The strong recent performance means it was also able to grow EPS by 180% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 36% over the next year. With the market predicted to deliver 37% growth , the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Shenzhen Newway Photomask Making's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Shenzhen Newway Photomask Making's P/E?

The latest share price surge wasn't enough to lift Shenzhen Newway Photomask Making'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.

We've established that Shenzhen Newway Photomask Making currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Shenzhen Newway Photomask Making with six simple checks.

Of course, you might also be able to find a better stock than Shenzhen Newway Photomask Making. 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.