Index Options
Nasdaq
Cboe
Brooklyn Nets
TradingView
Wall Street JournalSome Confidence Is Lacking In NanJing Research Institute of Surveying, Mapping & Geotechnical Investigation, Co.Ltd's (SZSE:300826) P/E
With a price-to-earnings (or "P/E") ratio of 48x NanJing Research Institute of Surveying, Mapping & Geotechnical Investigation, Co.Ltd (SZSE:300826) may be sending very bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 28x and even P/E's lower than 17x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
For example, consider that NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
What Are Growth Metrics Telling Us About The High P/E?
NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 27%. The last three years don't look nice either as the company has shrunk EPS by 46% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's an unpleasant look.
In light of this, it's alarming that NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.
What We Can Learn From NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd's P/E?
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.
Our examination of NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
Before you settle on your opinion, we've discovered 5 warning signs for NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd (2 are potentially serious!) that you should be aware of.
You might be able to find a better investment than NanJing Research Institute of Surveying Mapping & Geotechnical InvestigationLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.