Even With A 31% Surge, Cautious Investors Are Not Rewarding Bethel Automotive Safety Systems Co., Ltd's (SHSE:603596) Performance Completely

Bethel Automotive Safety Systems Co., Ltd (SHSE:603596) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 20% over that time.

Although its price has surged higher, there still wouldn't be many who think Bethel Automotive Safety Systems' price-to-earnings (or "P/E") ratio of 25.6x is worth a mention when the median P/E in China is similar at about 28x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Bethel Automotive Safety Systems 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 might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Bethel Automotive Safety Systems

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Bethel Automotive Safety Systems.

Does Growth Match The P/E?

Bethel Automotive Safety Systems' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 21% last year. Pleasingly, EPS has also lifted 75% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 24% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 19% per year, which is noticeably less attractive.

In light of this, it's curious that Bethel Automotive Safety Systems' P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Bethel Automotive Safety Systems' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Bethel Automotive Safety Systems' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Bethel Automotive Safety Systems you should be aware of, and 1 of them is a bit unpleasant.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.