Baimtec Material Co.,Ltd.'s (SHSE:688563) 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 33x, you may consider Baimtec Material Co.,Ltd. (SHSE:688563) as a stock to potentially avoid with its 47.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Baimtec MaterialLtd has been struggling lately as its earnings have declined faster 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 Baimtec MaterialLtd

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

How Is Baimtec MaterialLtd's Growth Trending?

In order to justify its P/E ratio, Baimtec MaterialLtd would need to produce impressive growth in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 21%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.8% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 60% over the next year. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

With this information, we can see why Baimtec MaterialLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Baimtec MaterialLtd's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Baimtec MaterialLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Baimtec MaterialLtd (including 1 which can't be ignored).

Of course, you might also be able to find a better stock than Baimtec MaterialLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.