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The Niu Technologies (NASDAQ:NIU) share price has softened a substantial 33% over the previous 30 days, handing back much of the gains the stock has made lately. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 278% in the last twelve months.
Since its price has dipped substantially, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 22x, you may consider Niu Technologies as an attractive investment with its 13.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
With earnings growth that's superior to most other companies of late, Niu Technologies has been doing relatively well. 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.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Niu Technologies.
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Niu Technologies' is when the company's growth is on track to lag the market.
If we review the last year of earnings growth, the company posted a terrific increase of 67%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Shifting to the future, estimates from the five analysts covering the company suggest earnings growth is heading into negative territory, declining 73% over the next year. Meanwhile, the broader market is forecast to expand by 20%, which paints a poor picture.
With this information, we are not surprised that Niu Technologies is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What We Can Learn From Niu Technologies' P/E?
Niu Technologies' P/E has taken a tumble along with its share price. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Niu Technologies' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Niu Technologies you should know about.
You might be able to find a better investment than Niu Technologies. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
This article by Simply Wall St is general in nature. 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.
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