What You Can Learn From Ningbo Sinyuan Zm Technology Co., Ltd.'s (SZSE:301398) P/EAfter Its 25% Share Price Crash

The Ningbo Sinyuan Zm Technology Co., Ltd. (SZSE:301398) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 51%, which is great even in a bull market.

Although its price has dipped substantially, Ningbo Sinyuan Zm Technology's price-to-earnings (or "P/E") ratio of 45.7x might still 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been advantageous for Ningbo Sinyuan Zm Technology as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Ningbo Sinyuan Zm Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ningbo Sinyuan Zm Technology.

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, Ningbo Sinyuan Zm Technology would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a decent 6.4% gain to the company's bottom line. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 51% over the next year. With the market only predicted to deliver 35%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Ningbo Sinyuan Zm Technology's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Ningbo Sinyuan Zm Technology's P/E

Even after such a strong price drop, Ningbo Sinyuan Zm Technology's P/E still exceeds the rest of the market significantly. 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.

As we suspected, our examination of Ningbo Sinyuan Zm Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Before you take the next step, you should know about the 3 warning signs for Ningbo Sinyuan Zm Technology (2 don't sit too well with us!) that we have uncovered.

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.