Shenzhen Topband Co., Ltd. (SZSE:002139) Stock Rockets 29% But Many Are Still Ignoring The Company

Shenzhen Topband Co., Ltd. (SZSE:002139) shareholders are no doubt pleased to see that the share price has bounced 29% 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 30% in the last twelve months.

Although its price has surged higher, Shenzhen Topband may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 22.5x, since almost half of all companies in China have P/E ratios greater than 31x and even P/E's higher than 56x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Shenzhen Topband has been doing quite well of late. 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.

See our latest analysis for Shenzhen Topband

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Topband.

What Are Growth Metrics Telling Us About The Low P/E?

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

If we review the last year of earnings growth, the company posted a worthy increase of 11%. Still, lamentably EPS has fallen 3.8% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 53% during the coming year according to the ten analysts following the company. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

In light of this, it's peculiar that Shenzhen Topband's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift Shenzhen Topband's P/E close to the market median. 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.

Our examination of Shenzhen Topband's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 1 warning sign for Shenzhen Topband that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.