Zhejiang Goldensea Hi-Tech Co., Ltd's (SHSE:603311) P/E Is Still On The Mark Following 28% Share Price Bounce

The Zhejiang Goldensea Hi-Tech Co., Ltd (SHSE:603311) share price has done very well over the last month, posting an excellent gain of 28%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.0% in the last twelve months.

Since its price has surged higher, Zhejiang Goldensea Hi-Tech's price-to-earnings (or "P/E") ratio of 46.9x 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 36x 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.

Zhejiang Goldensea Hi-Tech certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Zhejiang Goldensea Hi-Tech

Keen to find out how analysts think Zhejiang Goldensea Hi-Tech'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?

There's an inherent assumption that a company should outperform the market for P/E ratios like Zhejiang Goldensea Hi-Tech's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 76% last year. Still, incredibly EPS has fallen 44% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 64% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 40%, which is noticeably less attractive.

With this information, we can see why Zhejiang Goldensea Hi-Tech 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 Zhejiang Goldensea Hi-Tech's P/E

The large bounce in Zhejiang Goldensea Hi-Tech's shares has lifted the company's P/E to a fairly high level. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Zhejiang Goldensea Hi-Tech'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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Zhejiang Goldensea Hi-Tech that you should be aware of.

You might be able to find a better investment than Zhejiang Goldensea Hi-Tech. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.