Investors Interested In China Shipbuilding Industry Group Power Co., Ltd.'s (SHSE:600482) Earnings

With a price-to-earnings (or "P/E") ratio of 48.2x China Shipbuilding Industry Group Power Co., Ltd. (SHSE:600482) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 36x and even P/E's lower than 21x 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 as high as it is.

Recent times have been pleasing for China Shipbuilding Industry Group Power as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for China Shipbuilding Industry Group Power

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Shipbuilding Industry Group Power.

Does Growth Match The High P/E?

In order to justify its P/E ratio, China Shipbuilding Industry Group Power 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 129% last year. The strong recent performance means it was also able to grow EPS by 112% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 107% over the next year. With the market only predicted to deliver 39%, 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 Key Takeaway

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 China Shipbuilding Industry Group Power's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. 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 1 warning sign for China Shipbuilding Industry Group Power that we have uncovered.

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.