The Shandong Nanshan Fashion Sci-Tech Co., Ltd. (SZSE:300918) share price has done very well over the last month, posting an excellent gain of 32%. Notwithstanding the latest gain, the annual share price return of 2.3% isn’t as impressive.
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 31x, you may still consider Shandong Nanshan Fashion Sci-Tech as an attractive investment with its 21.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it’s justified.
Shandong Nanshan Fashion Sci-Tech certainly has been doing a good job lately as it’s been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you’d be hoping this isn’t the case so that you could potentially pick up some stock while it’s out of favour.
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How Is Shandong Nanshan Fashion Sci-Tech’s Growth Trending?
In order to justify its P/E ratio, Shandong Nanshan Fashion Sci-Tech would need to produce sluggish growth that’s trailing the market.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.3% last year. Pleasingly, EPS has also lifted 90% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it’s fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 16% per annum during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to expand by 25% per year, which is noticeably more attractive.
In light of this, it’s understandable that Shandong Nanshan Fashion Sci-Tech’s P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Shandong Nanshan Fashion Sci-Tech’s P/E?
Despite Shandong Nanshan Fashion Sci-Tech’s shares building up a head of steam, its P/E still lags most other companies. 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.
As we suspected, our examination of Shandong Nanshan Fashion Sci-Tech’s analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won’t provide any pleasant surprises. It’s hard to see the share price rising strongly in the near future under these circumstances.
Before you settle on your opinion, we’ve discovered 3 warning signs for Shandong Nanshan Fashion Sci-Tech (1 can’t be ignored!) that you should be aware of.
If you’re unsure about the strength of Shandong Nanshan Fashion Sci-Tech’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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Find out whether Shandong Nanshan Fashion Sci-Tech is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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