After Leaping 35% Beijing Yuanliu Hongyuan Electronic Technology Co., Ltd. (SHSE:603267) Shares Are Not Flying Under The Radar

Simply Wall St · 10/17 23:12

Beijing Yuanliu Hongyuan Electronic Technology Co., Ltd. (SHSE:603267) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 29% over that time.

After such a large jump in price, Beijing Yuanliu Hongyuan Electronic Technology may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 53.9x, since almost half of all companies in China have P/E ratios under 31x and even P/E's lower than 18x 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.

With earnings that are retreating more than the market's of late, Beijing Yuanliu Hongyuan Electronic Technology has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Beijing Yuanliu Hongyuan Electronic Technology

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SHSE:603267 Price to Earnings Ratio vs Industry October 17th 2024
Keen to find out how analysts think Beijing Yuanliu Hongyuan Electronic Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Beijing Yuanliu Hongyuan Electronic Technology?

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

Retrospectively, the last year delivered a frustrating 68% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 77% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 44% each year as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 18% per annum, which is noticeably less attractive.

In light of this, it's understandable that Beijing Yuanliu Hongyuan Electronic Technology's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Beijing Yuanliu Hongyuan Electronic Technology's P/E

The strong share price surge has got Beijing Yuanliu Hongyuan Electronic Technology's P/E rushing to great heights as well. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Beijing Yuanliu Hongyuan Electronic Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Beijing Yuanliu Hongyuan Electronic Technology that you should be aware of.

You might be able to find a better investment than Beijing Yuanliu Hongyuan 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).