Dnake (Xiamen) Intelligent Technology Co., Ltd. (SZSE:300884) Stock Rockets 36% As Investors Are Less Pessimistic Than Expected

Those holding Dnake (Xiamen) Intelligent Technology Co., Ltd. (SZSE:300884) shares would be relieved that the share price has rebounded 36% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 7.7% over the last year.

Although its price has surged higher, there still wouldn't be many who think Dnake (Xiamen) Intelligent Technology's price-to-earnings (or "P/E") ratio of 29.7x is worth a mention when the median P/E in China is similar at about 30x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

We'd have to say that with no tangible growth over the last year, Dnake (Xiamen) Intelligent Technology's earnings have been unimpressive. One possibility is that the P/E is moderate because investors think this benign earnings growth rate might not be enough to outperform the broader market in the near future. If not, then existing shareholders may be feeling hopeful about the future direction of the share price.

See our latest analysis for Dnake (Xiamen) Intelligent Technology

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Dnake (Xiamen) Intelligent Technology will help you shine a light on its historical performance.

Is There Some Growth For Dnake (Xiamen) Intelligent Technology?

There's an inherent assumption that a company should be matching the market for P/E ratios like Dnake (Xiamen) Intelligent Technology's to be considered reasonable.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 58% overall from three years ago. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 41% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's somewhat alarming that Dnake (Xiamen) Intelligent Technology's P/E sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

The Key Takeaway

Its shares have lifted substantially and now Dnake (Xiamen) Intelligent Technology's P/E is also back up 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 Dnake (Xiamen) Intelligent Technology currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Having said that, be aware Dnake (Xiamen) Intelligent Technology is showing 4 warning signs in our investment analysis, and 2 of those shouldn't be ignored.

If you're unsure about the strength of Dnake (Xiamen) Intelligent 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.