Shanghai Kelai Mechatronics Engineering Co.,Ltd. (SHSE:603960) Not Flying Under The Radar

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 27x, you may consider Shanghai Kelai Mechatronics Engineering Co.,Ltd. (SHSE:603960) as a stock to avoid entirely with its 61.7x 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 Shanghai Kelai Mechatronics EngineeringLtd 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Shanghai Kelai Mechatronics EngineeringLtd

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

Is There Enough Growth For Shanghai Kelai Mechatronics EngineeringLtd?

Shanghai Kelai Mechatronics EngineeringLtd's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 12% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 28% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 68% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 36% growth forecast for the broader market.

With this information, we can see why Shanghai Kelai Mechatronics EngineeringLtd 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 Shanghai Kelai Mechatronics EngineeringLtd's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Shanghai Kelai Mechatronics EngineeringLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Shanghai Kelai Mechatronics EngineeringLtd with six simple checks on some of these key factors.

If you're unsure about the strength of Shanghai Kelai Mechatronics EngineeringLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com