Ningbo Jianan Electronics Co.,Ltd (SZSE:300880) shares have continued their recent momentum with a 25% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 16% is also fairly reasonable.

Even after such a large jump in price, Ningbo Jianan ElectronicsLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 23.2x, since almost half of all companies in China have P/E ratios greater than 33x and even P/E's higher than 62x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Ningbo Jianan ElectronicsLtd has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Is There Any Growth For Ningbo Jianan ElectronicsLtd?

Ningbo Jianan ElectronicsLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 16% gain to the company's bottom line. Pleasingly, EPS has also lifted 77% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 38% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Ningbo Jianan ElectronicsLtd is trading at a P/E lower than the market. 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.

What We Can Learn From Ningbo Jianan ElectronicsLtd's P/E?

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

Plus, you should also learn about this 1 warning sign we've spotted with Ningbo Jianan ElectronicsLtd.

If you're unsure about the strength of Ningbo Jianan ElectronicsLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.