Ningbo Jianan Electronics Co.,Ltd (SZSE:300880) Shares Fly 26% But Investors Aren't Buying For Growth

Those holding Ningbo Jianan Electronics Co.,Ltd (SZSE:300880) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.8% in the last twelve months.

Even after such a large jump in price, Ningbo Jianan ElectronicsLtd's price-to-earnings (or "P/E") ratio of 22.4x 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 31x 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.

Earnings have risen at a steady rate over the last year for Ningbo Jianan ElectronicsLtd, which is generally not a bad outcome. It might be that many expect the respectable earnings performance to degrade, 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 Jianan ElectronicsLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Ningbo Jianan ElectronicsLtd's earnings, revenue and cash flow.

How Is Ningbo Jianan ElectronicsLtd's Growth Trending?

In order to justify its P/E ratio, Ningbo Jianan ElectronicsLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a decent 5.3% gain to the company's bottom line. The latest three year period has also seen a 16% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 41% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Ningbo Jianan ElectronicsLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

The latest share price surge wasn't enough to lift Ningbo Jianan ElectronicsLtd's P/E close to the market median. 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.

We've established that Ningbo Jianan ElectronicsLtd maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Ningbo Jianan ElectronicsLtd that you need to take into consideration.

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

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.