Suzhou Chunqiu Electronic Technology Co., Ltd.'s (SHSE:603890) Shares Climb 34% But Its Business Is Yet to Catch Up

Simply Wall St · 10/14 22:23

Suzhou Chunqiu Electronic Technology Co., Ltd. (SHSE:603890) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 31x, you may consider Suzhou Chunqiu Electronic Technology as a stock to avoid entirely with its 69.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been quite advantageous for Suzhou Chunqiu Electronic Technology as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Suzhou Chunqiu Electronic Technology

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SHSE:603890 Price to Earnings Ratio vs Industry October 14th 2024
Although there are no analyst estimates available for Suzhou Chunqiu Electronic Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Suzhou Chunqiu Electronic Technology's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Suzhou Chunqiu Electronic Technology's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 299%. Still, incredibly EPS has fallen 78% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 37% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Suzhou Chunqiu Electronic Technology is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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 Suzhou Chunqiu Electronic Technology's P/E?

The strong share price surge has got Suzhou Chunqiu Electronic Technology's P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Suzhou Chunqiu Electronic Technology 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. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. 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 2 warning signs for Suzhou Chunqiu Electronic Technology (1 is a bit unpleasant!) that you should be aware of.

You might be able to find a better investment than Suzhou Chunqiu Electronic Technology. 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).