Autel Intelligent Technology Corp., Ltd.'s (SHSE:688208) P/E Is Still On The Mark Following 35% Share Price Bounce

The Autel Intelligent Technology Corp., Ltd. (SHSE:688208) share price has done very well over the last month, posting an excellent gain of 35%. Notwithstanding the latest gain, the annual share price return of 7.1% isn't as impressive.

After such a large jump in price, Autel Intelligent Technology may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 37.1x, since almost half of all companies in China have P/E ratios under 33x and even P/E's lower than 20x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Autel Intelligent Technology 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Growth For Autel Intelligent Technology?

The only time you'd be truly comfortable seeing a P/E as high as Autel Intelligent Technology's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 83% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 23% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 30% each year over the next three years. That's shaping up to be materially higher than the 19% per year growth forecast for the broader market.

With this information, we can see why Autel Intelligent Technology 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

Autel Intelligent Technology's P/E is getting right up there since its shares have risen strongly. 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 Autel Intelligent Technology 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.

You always need to take note of risks, for example - Autel Intelligent Technology has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Autel Intelligent Technology, 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.