GuangDong PaiSheng Intelligent Technology Co.,Ltd (SZSE:300176) Looks Just Right With A 25% Price Jump

The GuangDong PaiSheng Intelligent Technology Co.,Ltd (SZSE:300176) share price has done very well over the last month, posting an excellent gain of 25%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 14% over that time.

Following the firm bounce in price, GuangDong PaiSheng Intelligent TechnologyLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 44x, since almost half of all companies in China have P/E ratios under 28x and even P/E's lower than 17x are not unusual. 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.

Recent times have been quite advantageous for GuangDong PaiSheng Intelligent TechnologyLtd as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for GuangDong PaiSheng Intelligent TechnologyLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on GuangDong PaiSheng Intelligent TechnologyLtd's earnings, revenue and cash flow.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as GuangDong PaiSheng Intelligent TechnologyLtd's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 221%. Pleasingly, EPS has also lifted 203% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that GuangDong PaiSheng Intelligent TechnologyLtd's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From GuangDong PaiSheng Intelligent TechnologyLtd's P/E?

Shares in GuangDong PaiSheng Intelligent TechnologyLtd have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of GuangDong PaiSheng Intelligent TechnologyLtd revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for GuangDong PaiSheng Intelligent TechnologyLtd (1 doesn't sit too well with us!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.