Shanghai Shengjian Environmental Science and Technology Co., Ltd. (SHSE:603324) shareholders will be pleased to see the share price rise 33% this month, recovering from an earlier slump, while longer term shareholders will be pleased to see the share price is roughly flat on the year after the recent surge.
Despite the robust share price growth, Shanghai Shengjian Environmental Technology remains an attractive investment with a P/E ratio of 23.7x, given that roughly half of Chinese companies have a price-to-earnings (or “P/E”) ratio above 28x. However, there are potential explanations for the limited P/E, so it would be unwise to take the P/E at face value.
Shanghai Shengjian Environmental Technology has certainly been doing well recently, with earnings growing faster than most other companies. One possibility is that investors believe this strong earnings performance will be less pronounced going forward, which is why the price-to-earnings multiple is low. If not, existing shareholders have reason to be quite optimistic about the future direction of the stock.
See the latest analysis for Shanghai Shengjian Environmental Technology
SHSE:603324 Price to Earnings Ratio vs Industry 17 August 2024 Want the bigger picture of analyst forecasts for the company? Then our free report on Shanghai Shengjian Environmental Technology can help shed light on what the future holds.
Is there growth for Shanghai Shengjian Environmental Technology?
The only time we'd be truly reassured by such a low price-to-earnings ratio would be if the company was on track to lag the market in growth.
Looking back, the company grew earnings per share by 25% last year. Despite this strong recent growth, the three-year EPS decline of 2.9% overall is frustrating and the company is struggling to catch up. Shareholders would therefore be pessimistic about earnings growth in the medium term.
Looking ahead, one analyst who tracks the company expects EPS to grow 25% annually for the next three years, compared to the rest of the market, which is forecast to grow 24% annually, not a huge difference.
Given this, it's odd that Shanghai Shengjian Environmental Technology's price-to-earnings multiple is lower than most other companies. It seems some shareholders are skeptical of the forecast and are accepting a lower offer price.
Final Words
The recent surge in its share price has not brought Shanghai Shengjian Environmental Technology's price-to-earnings ratio closer to the market average. While the price-to-earnings ratio is not a deciding factor for whether to buy a stock, it is a good barometer for gauging earnings expectations.
After examining analyst forecasts for Shanghai Shengjian Environmental Technology, we found that the company's market-aligned earnings outlook is not contributing as much to the P/E as expected. Some unobserved threats to earnings could be causing the P/E ratio to not be in line with the outlook. Typically, such a situation would provide further support for the stock, so it seems some are actually expecting earnings volatility.
Additionally, you should also be aware of the 3 warning signs we've spotted with Shanghai Shengjian Environmental Technology (including 1 which can't be ignored) .
You might find a better investment than Shanghai Shengjian Environmental Technology Co., Ltd. If you'd like to pick some potential companies, check out this free list of interesting companies with low P/E ratios (but proven they can grow earnings).
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
