Market Might Still Lack Some Conviction On Changzhou Zhongying Science & Technology Co., Ltd (SZSE:300936) Even After 27% Share Price Boost

Changzhou Zhongying Science & Technology Co., Ltd (SZSE:300936) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.

Although its price has surged higher, Changzhou Zhongying Science & Technology's price-to-earnings (or "P/E") ratio of 21.4x 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 30x and even P/E's above 58x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Changzhou Zhongying Science & Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Changzhou Zhongying Science & Technology

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Changzhou Zhongying Science & Technology will help you shine a light on its historical performance.

How Is Changzhou Zhongying Science & Technology's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Changzhou Zhongying Science & Technology's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 317%. The latest three year period has also seen an excellent 133% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

It's interesting to note that the rest of the market is similarly expected to grow by 36% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Changzhou Zhongying Science & Technology's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

What We Can Learn From Changzhou Zhongying Science & Technology's P/E?

The latest share price surge wasn't enough to lift Changzhou Zhongying Science & Technology's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Changzhou Zhongying Science & Technology currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Changzhou Zhongying Science & Technology (at least 2 which are a bit unpleasant), and understanding them should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.