There's No Escaping Sihui Fuji Electronics Technology Co., Ltd.'s (SZSE:300852) Muted Earnings Despite A 43% Share Price Rise

Sihui Fuji Electronics Technology Co., Ltd. (SZSE:300852) shares have had a really impressive month, gaining 43% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 8.6% isn't as attractive.

Even after such a large jump in price, Sihui Fuji Electronics Technology may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 22.1x, since almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 64x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Sihui Fuji Electronics Technology's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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.

See our latest analysis for Sihui Fuji Electronics Technology

Although there are no analyst estimates available for Sihui Fuji Electronics Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.5%. Still, the latest three year period has seen an excellent 35% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Sihui Fuji Electronics Technology's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Sihui Fuji Electronics Technology's P/E

Sihui Fuji Electronics Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Sihui Fuji Electronics Technology maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, 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 2 warning signs for Sihui Fuji Electronics Technology that you should be aware of.

If these risks are making you reconsider your opinion on Sihui Fuji Electronics Technology, 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.