Shenzhen KSTAR Science and Technology Co., Ltd. (SZSE:002518) shareholders will no doubt be happy to see the share price up 26% in the last month, but it's still struggling to regain some recent loss. Not all shareholders are thrilled, as the share price is still down 49% in the last 12 months.

Shenzhen KSTAR Technology's price has soared, but almost half of all companies in China have a price-to-earnings ratio of 15.7 times, which may still be sending a bullish signal at this point. It's not uncommon for PER to exceed his 31x and even exceed his 56x. Nevertheless, we need to dig a little deeper to determine whether there's a rational basis for the lower P/E ratio.

The recent positive situation for Shenzhen KSTAR Technology is that profits have been increasing despite the reversal of market returns. Many are probably expecting strong earnings to deteriorate significantly, perhaps even worse than the market that drove down the P/E ratio. If you like the company, you'll hope it doesn't so you can potentially buy shares when the company is unpopular.

See our latest analysis on Shenzhen KSTAR Science and Technology.

SZSE:002518 Price Earnings Ratio vs. Industry March 4, 2024

If you want to know what analysts are predicting for the future, check out this article. free Report on Shenzhen KSTAR science and technology.

Does growth equate to a low P/E ratio?

The only time it's really reassuring to see a P/E as low as Shenzhen KSTAR Technology's is if the company's growth is on track to lag the market.

First, looking back at the past, we can see that the company grew its earnings per share by an impressive 66% in the last year. His recent strong performance means he has been able to grow his EPS by a total of 180% over the past three years. Therefore, shareholders likely welcomed these medium-term earnings growth rates.

Looking ahead, EPS is expected to increase by 15% over the next year, according to 8 analysts who follow the company. On the other hand, the rest of the market is predicted to expand by 41%, which is significantly more attractive.

With this in mind, it's understandable that Shenzhen KSTAR Technology's P/E is lower than most other companies. Most investors expect future growth to be limited and are only willing to pay less for the stock.

Important points

The recent stock price rally wasn't enough to bring Shenzhen KSTAR Technology's P/E ratio closer to the market median. Generally, we like to limit our use of price-to-earnings ratios to establishing what the market thinks about a company's overall health.

As we suspected, after examining Shenzhen KSTAR Technology's analyst forecasts, we found that the poor earnings outlook is contributing to the low P/E ratio. At this stage, investors feel that the potential for improved earnings is not large enough to justify a higher P/E ratio. Under these circumstances, it is difficult to imagine that stock prices will rise significantly in the near future.

I don't really want it to rain on the parade, but it did rain. Shenzhen KSTAR science and technology warning sign 1 What you need to be careful about.

of course, You may be able to find a better stock than Shenzhen KSTAR Technology.So you might want to see this free A collection of other companies with reasonable P/E ratios and strong earnings growth.

Valuation is complex, but we help make it simple.

Check out our comprehensive analysis, including below, to see if Shenzhen KSTAR Science and Technology is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.

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