Ningbo Sunrise Elc Technology Co.,Ltd's (SZSE:002937) Price Is Right But Growth Is Lacking After Shares Rocket 33%

Those holding Ningbo Sunrise Elc Technology Co.,Ltd (SZSE:002937) shares would be relieved that the share price has rebounded 33% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.

In spite of the firm bounce in price, Ningbo Sunrise Elc TechnologyLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 25x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Ningbo Sunrise Elc TechnologyLtd has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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 Ningbo Sunrise Elc TechnologyLtd

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

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

Retrospectively, the last year delivered an exceptional 61% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 105% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 34% over the next year. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Ningbo Sunrise Elc TechnologyLtd is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The latest share price surge wasn't enough to lift Ningbo Sunrise Elc TechnologyLtd'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.

As we suspected, our examination of Ningbo Sunrise Elc TechnologyLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Ningbo Sunrise Elc TechnologyLtd that you should be aware of.

If these risks are making you reconsider your opinion on Ningbo Sunrise Elc TechnologyLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.