Further Upside For Shenzhen Everwin Precision Technology Co., Ltd. (SZSE:300115) Shares Could Introduce Price Risks After 51% Bounce

Shenzhen Everwin Precision Technology Co., Ltd. (SZSE:300115) shares have had a really impressive month, gaining 51% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 54% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Shenzhen Everwin Precision Technology's P/E ratio of 34.3x, since the median price-to-earnings (or "P/E") ratio in China is also close to 34x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been pleasing for Shenzhen Everwin Precision Technology as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. 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 not quite in favour.

Check out our latest analysis for Shenzhen Everwin Precision Technology

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

Does Growth Match The P/E?

Shenzhen Everwin Precision Technology's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 208% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 6.7% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 26% per year over the next three years. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader market.

In light of this, it's curious that Shenzhen Everwin Precision Technology's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Shenzhen Everwin Precision Technology appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

Our examination of Shenzhen Everwin Precision Technology's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Shenzhen Everwin Precision Technology (1 is potentially serious!) that you need to be mindful of.

If you're unsure about the strength of Shenzhen Everwin Precision Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.