A Piece Of The Puzzle Missing From Shenzhen Aisidi Co., Ltd.'s (SZSE:002416) 25% Share Price Climb

Shenzhen Aisidi Co., Ltd. (SZSE:002416) shareholders have had their patience rewarded with a 25% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 26% in the last year.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Shenzhen Aisidi as an attractive investment with its 22.9x 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.

While the market has experienced earnings growth lately, Shenzhen Aisidi's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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 Aisidi

Keen to find out how analysts think Shenzhen Aisidi's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Shenzhen Aisidi?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shenzhen Aisidi's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 19% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 54% over the next year. With the market only predicted to deliver 40%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Shenzhen Aisidi is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

The latest share price surge wasn't enough to lift Shenzhen Aisidi'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 Aisidi currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Shenzhen Aisidi that you should be aware of.

You might be able to find a better investment than Shenzhen Aisidi. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.