Stock Analysis

Some Confidence Is Lacking In Wuxi Best Precision Machinery Co., Ltd.'s (SZSE:300580) P/E

SZSE:300580
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When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 28x, you may consider Wuxi Best Precision Machinery Co., Ltd. (SZSE:300580) as a stock to potentially avoid with its 32.2x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Wuxi Best Precision Machinery as its earnings have risen in spite of the market's earnings going into reverse. 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.

See our latest analysis for Wuxi Best Precision Machinery

pe-multiple-vs-industry
SZSE:300580 Price to Earnings Ratio vs Industry February 29th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Wuxi Best Precision Machinery.

Is There Enough Growth For Wuxi Best Precision Machinery?

In order to justify its P/E ratio, Wuxi Best Precision Machinery would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 44% last year. The strong recent performance means it was also able to grow EPS by 44% 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.

Looking ahead now, EPS is anticipated to climb by 13% during the coming year according to the three analysts following the company. Meanwhile, the rest of the market is forecast to expand by 41%, which is noticeably more attractive.

With this information, we find it concerning that Wuxi Best Precision Machinery is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Wuxi Best Precision Machinery's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Wuxi Best Precision Machinery's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about these 4 warning signs we've spotted with Wuxi Best Precision Machinery.

If these risks are making you reconsider your opinion on Wuxi Best Precision Machinery, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're here to simplify it.

Discover if Wuxi Best Precision Machinery might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.