Why Investors Shouldn't Be Surprised By Anhui Anfu Battery Technology Co.,Ltd's (SHSE:603031) 33% Share Price Surge

Anhui Anfu Battery Technology Co.,Ltd (SHSE:603031) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 30x, you may consider Anhui Anfu Battery TechnologyLtd as a stock to avoid entirely with its 71.8x 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.

Recent times have been advantageous for Anhui Anfu Battery TechnologyLtd 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.

See our latest analysis for Anhui Anfu Battery TechnologyLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Anhui Anfu Battery TechnologyLtd.

Is There Enough Growth For Anhui Anfu Battery TechnologyLtd?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Anhui Anfu Battery TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 38% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 52% during the coming year according to the only analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 39%, which is noticeably less attractive.

In light of this, it's understandable that Anhui Anfu Battery TechnologyLtd'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 Anhui Anfu Battery TechnologyLtd's P/E

The strong share price surge has got Anhui Anfu Battery TechnologyLtd's P/E rushing to great heights as well. 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.

As we suspected, our examination of Anhui Anfu Battery TechnologyLtd'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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Anhui Anfu Battery TechnologyLtd you should know about.

If these risks are making you reconsider your opinion on Anhui Anfu Battery TechnologyLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.