GUILIN FUDA Co.,Ltd. (SHSE:603166) Stocks Shoot Up 33% But Its P/E Still Looks Reasonable

GUILIN FUDA Co.,Ltd. (SHSE:603166) shares have continued their recent momentum with a 33% gain in the last month alone. The last month tops off a massive increase of 147% in the last year.

Following the firm bounce in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 38x, you may consider GUILIN FUDALtd as a stock to potentially avoid with its 55.3x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

GUILIN FUDALtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, 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.

View our latest analysis for GUILIN FUDALtd

Keen to find out how analysts think GUILIN FUDALtd's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

GUILIN FUDALtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 109% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 33% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 57% over the next year. That's shaping up to be materially higher than the 37% growth forecast for the broader market.

With this information, we can see why GUILIN FUDALtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

GUILIN FUDALtd's P/E is getting right up there since its shares have risen strongly. 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.

As we suspected, our examination of GUILIN FUDALtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with GUILIN FUDALtd (including 1 which is a bit unpleasant).

You might be able to find a better investment than GUILIN FUDALtd. 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).

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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.