What You Can Learn From Shanghai Yanpu Metal Products Co.,Ltd's (SHSE:605128) P/E

Shanghai Yanpu Metal Products Co.,Ltd's (SHSE:605128) price-to-earnings (or "P/E") ratio of 50.4x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Shanghai Yanpu Metal ProductsLtd has been doing quite well of late. 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Shanghai Yanpu Metal ProductsLtd

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

Is There Enough Growth For Shanghai Yanpu Metal ProductsLtd?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Shanghai Yanpu Metal ProductsLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 27%. However, this wasn't enough as the latest three year period has seen a very unpleasant 30% 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 three analysts covering the company suggest earnings should grow by 134% over the next year. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

With this information, we can see why Shanghai Yanpu Metal ProductsLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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.

We've established that Shanghai Yanpu Metal ProductsLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

It is also worth noting that we have found 1 warning sign for Shanghai Yanpu Metal ProductsLtd that you need to take into consideration.

You might be able to find a better investment than Shanghai Yanpu Metal ProductsLtd. 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.