China Shipbuilding Industry Group Power Co., Ltd.'s (SHSE:600482) 26% Jump Shows Its Popularity With Investors

China Shipbuilding Industry Group Power Co., Ltd. (SHSE:600482) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 27x, you may consider China Shipbuilding Industry Group Power as a stock to avoid entirely with its 62x P/E ratio. 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.

China Shipbuilding Industry Group Power certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

China Shipbuilding Industry Group Power's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 175% last year. EPS has also lifted 7.1% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 64% per year during the coming three years according to the only analyst following the company. With the market only predicted to deliver 24% per year, the company is positioned for a stronger earnings result.

With this information, we can see why China Shipbuilding Industry Group Power 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 Bottom Line On China Shipbuilding Industry Group Power's P/E

China Shipbuilding Industry Group Power's P/E is flying high just like its stock has during the last month. 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.

We've established that China Shipbuilding Industry Group Power 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for China Shipbuilding Industry Group Power with six simple checks.

Of course, you might also be able to find a better stock than China Shipbuilding Industry Group Power. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com