Further Upside For Arctech Solar Holding Co., Ltd. (SHSE:688408) Shares Could Introduce Price Risks After 40% Bounce

The Arctech Solar Holding Co., Ltd. (SHSE:688408) share price has done very well over the last month, posting an excellent gain of 40%. The last 30 days bring the annual gain to a very sharp 68%.

Although its price has surged higher, it's still not a stretch to say that Arctech Solar Holding's price-to-earnings (or "P/E") ratio of 35.3x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 34x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Arctech Solar Holding 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 might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Arctech Solar Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Arctech Solar Holding.

Does Growth Match The P/E?

Arctech Solar Holding's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 248%. The latest three year period has also seen an excellent 125% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 30% per year over the next three years. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader market.

In light of this, it's curious that Arctech Solar Holding's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Arctech Solar Holding's P/E

Arctech Solar Holding's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Arctech Solar Holding's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 3 warning signs for Arctech Solar Holding (1 doesn't sit too well with us!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.