KEDE Numerical Control Co., Ltd.'s (SHSE:688305) Earnings Haven't Escaped The Attention Of Investors

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 26x, you may consider KEDE Numerical Control Co., Ltd. (SHSE:688305) as a stock to avoid entirely with its 63x 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.

KEDE Numerical Control certainly has been doing a good job lately as it's been growing earnings more 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.

Check out our latest analysis for KEDE Numerical Control

Want the full picture on analyst estimates for the company? Then our free report on KEDE Numerical Control will help you uncover what's on the horizon.

Does Growth Match The High P/E?

In order to justify its P/E ratio, KEDE Numerical Control would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 11% last year. The solid recent performance means it was also able to grow EPS by 6.7% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 48% each year over the next three years. With the market only predicted to deliver 23% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that KEDE Numerical Control'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.

The Final Word

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 KEDE Numerical Control'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.

You always need to take note of risks, for example - KEDE Numerical Control has 1 warning sign we think you should be aware of.

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

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

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.