The Market Lifts Shanghai Yaoji Technology Co., Ltd. (SZSE:002605) Shares 33% But It Can Do More

Simply Wall St · 10/19 00:23

Shanghai Yaoji Technology Co., Ltd. (SZSE:002605) shares have continued their recent momentum with a 33% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 9.5% isn't as impressive.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Shanghai Yaoji Technology as an attractive investment with its 24.5x 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.

Shanghai Yaoji Technology has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Shanghai Yaoji Technology

pe-multiple-vs-industry
SZSE:002605 Price to Earnings Ratio vs Industry October 19th 2024
Want the full picture on analyst estimates for the company? Then our free report on Shanghai Yaoji Technology will help you uncover what's on the horizon.

Is There Any Growth For Shanghai Yaoji Technology?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shanghai Yaoji Technology's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 23%. The last three years don't look nice either as the company has shrunk EPS by 36% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 23% per annum over the next three years. With the market only predicted to deliver 18% per year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Shanghai Yaoji Technology's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Shanghai Yaoji Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Shanghai Yaoji Technology currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Shanghai Yaoji Technology that you should be aware of.

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