Investors Continue Waiting On Sidelines For NBTM New Materials Group Co., Ltd. (SHSE:600114)

With a median price-to-earnings (or "P/E") ratio of close to 32x in China, you could be forgiven for feeling indifferent about NBTM New Materials Group Co., Ltd.'s (SHSE:600114) P/E ratio of 33x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

NBTM New Materials Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for NBTM New Materials Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on NBTM New Materials Group.

How Is NBTM New Materials Group's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like NBTM New Materials Group's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 54% last year. Pleasingly, EPS has also lifted 146% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 29% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 26% each year, which is noticeably less attractive.

With this information, we find it interesting that NBTM New Materials Group is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

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.

Our examination of NBTM New Materials Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for NBTM New Materials Group you should be aware of, and 1 of them is a bit unpleasant.

If these risks are making you reconsider your opinion on NBTM New Materials Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.