Market Might Still Lack Some Conviction On Lingyi iTech (Guangdong) Company (SZSE:002600) Even After 28% Share Price Boost

Lingyi iTech (Guangdong) Company (SZSE:002600) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.7% in the last twelve months.

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 29x, you may still consider Lingyi iTech (Guangdong) as an attractive investment with its 22.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

While the market has experienced earnings growth lately, Lingyi iTech (Guangdong)'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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Lingyi iTech (Guangdong)

Want the full picture on analyst estimates for the company? Then our free report on Lingyi iTech (Guangdong) will help you uncover what's on the horizon.

How Is Lingyi iTech (Guangdong)'s Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Lingyi iTech (Guangdong)'s is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 4.9% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 31% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 28% each year during the coming three years according to the five analysts following the company. With the market only predicted to deliver 25% per year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Lingyi iTech (Guangdong)'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 Bottom Line On Lingyi iTech (Guangdong)'s P/E

The latest share price surge wasn't enough to lift Lingyi iTech (Guangdong)'s P/E close to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Lingyi iTech (Guangdong) currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. 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 Lingyi iTech (Guangdong) that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.

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