With a price-to-earnings (or "P/E") ratio of 24.7x Shandong Jinjing Science & Technology Stock Co.,Ltd (SHSE:600586) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 35x and even P/E's higher than 63x 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.
With earnings that are retreating more than the market's of late, Shandong Jinjing Science & Technology StockLtd has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.
See our latest analysis for Shandong Jinjing Science & Technology StockLtd
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, Shandong Jinjing Science & Technology StockLtd would need to produce sluggish growth that's trailing the market.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 148% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
Turning to the outlook, the next year should generate growth of 104% as estimated by the four analysts watching the company. With the market only predicted to deliver 43%, the company is positioned for a stronger earnings result.
In light of this, it's peculiar that Shandong Jinjing Science & Technology StockLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Final Word
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.
Our examination of Shandong Jinjing Science & Technology StockLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Shandong Jinjing Science & Technology StockLtd with six simple checks on some of these key factors.
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.