The Market Lifts Edifier Technology Co., Ltd. (SZSE:002351) Shares 44% But It Can Do More

Simply Wall St · 10/18 22:26

Edifier Technology Co., Ltd. (SZSE:002351) shares have had a really impressive month, gaining 44% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 15% in the last twelve months.

In spite of the firm bounce in price, Edifier Technology's price-to-earnings (or "P/E") ratio of 25.3x 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 32x and even P/E's above 62x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Edifier Technology has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Edifier Technology

pe-multiple-vs-industry
SZSE:002351 Price to Earnings Ratio vs Industry October 18th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Edifier Technology.

Does Growth Match The Low P/E?

Edifier Technology'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 44% gain to the company's bottom line. As a result, it also grew EPS by 25% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 23% per year as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 18% per year, which is noticeably less attractive.

With this information, we find it odd that Edifier Technology is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Edifier Technology's P/E?

Edifier Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Edifier Technology currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

It is also worth noting that we have found 1 warning sign for Edifier Technology that you need to take into consideration.

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.