Why Investors Shouldn't Be Surprised By Shenzhen United Winners Laser Co., Ltd.'s (SHSE:688518) 27% Share Price Surge

Despite an already strong run, Shenzhen United Winners Laser Co., Ltd. (SHSE:688518) shares have been powering on, with a gain of 27% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 8.0% over the last year.

After such a large jump in price, Shenzhen United Winners Laser's price-to-earnings (or "P/E") ratio of 51.7x 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 34x and even P/E's below 20x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times haven't been advantageous for Shenzhen United Winners Laser as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Shenzhen United Winners Laser

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen United Winners Laser.

Does Growth Match The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Shenzhen United Winners Laser's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 63% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 2.2% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 186% over the next year. With the market only predicted to deliver 39%, the company is positioned for a stronger earnings result.

With this information, we can see why Shenzhen United Winners Laser 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 Final Word

Shenzhen United Winners Laser's P/E is getting right up there since its shares have risen strongly. 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 Shenzhen United Winners Laser maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 4 warning signs we've spotted with Shenzhen United Winners Laser (including 1 which can't be ignored).

If you're unsure about the strength of Shenzhen United Winners Laser'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.