Anhui Yingliu Electromechanical Co., Ltd. (SHSE:603308) Looks Just Right With A 29% Price Jump

Despite an already strong run, Anhui Yingliu Electromechanical Co., Ltd. (SHSE:603308) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 47% in the last year.

After such a large jump in price, Anhui Yingliu Electromechanical's price-to-earnings (or "P/E") ratio of 41.1x 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 31x and even P/E's below 18x 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 earnings that are retreating more than the market's of late, Anhui Yingliu Electromechanical has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Anhui Yingliu Electromechanical

Keen to find out how analysts think Anhui Yingliu Electromechanical's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

Anhui Yingliu Electromechanical's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 34%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 29% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 69% during the coming year according to the six analysts following the company. That's shaping up to be materially higher than the 38% growth forecast for the broader market.

In light of this, it's understandable that Anhui Yingliu Electromechanical'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.

What We Can Learn From Anhui Yingliu Electromechanical's P/E?

The large bounce in Anhui Yingliu Electromechanical's shares has lifted the company's P/E to a fairly high level. 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 Anhui Yingliu Electromechanical maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Anhui Yingliu Electromechanical is showing 3 warning signs in our investment analysis, and 1 of those is potentially serious.

If these risks are making you reconsider your opinion on Anhui Yingliu Electromechanical, 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.