Nisun International Enterprise Development Group Co., Ltd's (NASDAQ:NISN) Price Is Right But Growth Is Lacking After Shares Rocket 63%

Nisun International Enterprise Development Group Co., Ltd (NASDAQ:NISN) shareholders would be excited to see that the share price has had a great month, posting a 63% gain and recovering from prior weakness. The last month tops off a massive increase of 221% in the last year.

Even after such a large jump in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may still consider Nisun International Enterprise Development Group as a highly attractive investment with its 2.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

For example, consider that Nisun International Enterprise Development Group's financial performance has been pretty ordinary lately as earnings growth is non-existent. One possibility is that the P/E is low because investors think this benign earnings growth rate will likely underperform 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.

View our latest analysis for Nisun International Enterprise Development Group

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 Nisun International Enterprise Development Group's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

Nisun International Enterprise Development Group's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

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. This isn't what shareholders were looking for as it means they've been left with a 16% decline in EPS over the last three years in total. 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 15% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Nisun International Enterprise Development Group is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Even after such a strong price move, Nisun International Enterprise Development Group's P/E still trails the rest of the market significantly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Nisun International Enterprise Development Group maintains its low P/E on the weakness of its sliding earnings over the medium-term, 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 moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Nisun International Enterprise Development Group (of which 1 can't be ignored!) you should know about.

Of course, you might also be able to find a better stock than Nisun International Enterprise Development Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.