Subdued Growth No Barrier To Zhejiang Wanfeng Auto Wheel Co., Ltd.'s (SZSE:002085) Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 34x, you may consider Zhejiang Wanfeng Auto Wheel Co., Ltd. (SZSE:002085) as a stock to potentially avoid with its 47.8x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

The recently shrinking earnings for Zhejiang Wanfeng Auto Wheel have been in line with the market. It might be that many expect the company's earnings to strengthen positively despite the tough market conditions, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Zhejiang Wanfeng Auto Wheel

Keen to find out how analysts think Zhejiang Wanfeng Auto Wheel'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?

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

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow EPS by an impressive 84% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 39% as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is not materially different.

In light of this, it's curious that Zhejiang Wanfeng Auto Wheel's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Zhejiang Wanfeng Auto Wheel's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Zhejiang Wanfeng Auto Wheel's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Zhejiang Wanfeng Auto Wheel has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Zhejiang Wanfeng Auto Wheel, 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.