Even With A 35% Surge, Cautious Investors Are Not Rewarding Suzhou Secote Precision Electronic Co.,LTD's (SHSE:603283) Performance Completely

Simply Wall St · 10/18 22:57

Those holding Suzhou Secote Precision Electronic Co.,LTD (SHSE:603283) shares would be relieved that the share price has rebounded 35% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days bring the annual gain to a very sharp 60%.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Suzhou Secote Precision ElectronicLTD as an attractive investment with its 19.1x P/E ratio. 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 its earnings growth in positive territory compared to the declining earnings of most other companies, Suzhou Secote Precision ElectronicLTD 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.

Check out our latest analysis for Suzhou Secote Precision ElectronicLTD

pe-multiple-vs-industry
SHSE:603283 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 Suzhou Secote Precision ElectronicLTD.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Suzhou Secote Precision ElectronicLTD's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 100%. The strong recent performance means it was also able to grow EPS by 536% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 17% per annum as estimated by the lone analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 18% per year, which is not materially different.

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

What We Can Learn From Suzhou Secote Precision ElectronicLTD's P/E?

The latest share price surge wasn't enough to lift Suzhou Secote Precision ElectronicLTD's P/E close to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Suzhou Secote Precision ElectronicLTD's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Suzhou Secote Precision ElectronicLTD with six simple checks on some of these key factors.

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