Jiangsu Seagull Cooling Tower Co.,Ltd. (SHSE:603269) shares have had a really impressive month, gaining 36% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.
Although its price has surged higher, Jiangsu Seagull Cooling TowerLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.7x, since almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 67x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Recent times have been pleasing for Jiangsu Seagull Cooling TowerLtd as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for Jiangsu Seagull Cooling TowerLtd
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangsu Seagull Cooling TowerLtd.Jiangsu Seagull Cooling TowerLtd'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.
Taking a look back first, we see that the company grew earnings per share by an impressive 21% last year. The latest three year period has also seen a 21% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 40% per annum during the coming three years according to the sole analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 18% each year, which is noticeably less attractive.
In light of this, it's peculiar that Jiangsu Seagull Cooling TowerLtd'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.
Jiangsu Seagull Cooling TowerLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.
We've established that Jiangsu Seagull Cooling TowerLtd 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.
You always need to take note of risks, for example - Jiangsu Seagull Cooling TowerLtd has 2 warning signs we think you should be aware of.
If you're unsure about the strength of Jiangsu Seagull Cooling TowerLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.