Avary Holding(Shenzhen)Co., Limited (SZSE:002938) Stock Catapults 31% Though Its Price And Business Still Lag The Market

Avary Holding(Shenzhen)Co., Limited (SZSE:002938) shares have continued their recent momentum with a 31% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 56%.

Although its price has surged higher, Avary Holding(Shenzhen)Co's price-to-earnings (or "P/E") ratio of 26x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 56x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Avary Holding(Shenzhen)Co could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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 Avary Holding(Shenzhen)Co

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

Is There Any Growth For Avary Holding(Shenzhen)Co?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 29%. Regardless, EPS has managed to lift by a handy 16% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should generate growth of 13% per year as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 25% per annum, which is noticeably more attractive.

In light of this, it's understandable that Avary Holding(Shenzhen)Co's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Avary Holding(Shenzhen)Co's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of Avary Holding(Shenzhen)Co'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.

Before you settle on your opinion, we've discovered 1 warning sign for Avary Holding(Shenzhen)Co that you should be aware of.

If these risks are making you reconsider your opinion on Avary Holding(Shenzhen)Co, 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.

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