Getting In Cheap On China Shipbuilding Industry Group Power Co., Ltd. (SHSE:600482) Might Be Difficult

China Shipbuilding Industry Group Power Co., Ltd.'s (SHSE:600482) price-to-earnings (or "P/E") ratio of 45.4x might make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 38x and even P/E's below 21x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, China Shipbuilding Industry Group Power has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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How Is China Shipbuilding Industry Group Power's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as China Shipbuilding Industry Group Power's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 129% gain to the company's bottom line. The latest three year period has also seen an excellent 112% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 107% over the next year. With the market only predicted to deliver 37%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that China Shipbuilding Industry Group Power's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On China Shipbuilding Industry Group Power'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.

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. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for China Shipbuilding Industry Group Power with six simple checks.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.