Why We're Not Concerned About Zhuhai CosMX Battery Co., Ltd.'s (SHSE:688772) Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 31x, you may consider Zhuhai CosMX Battery Co., Ltd. (SHSE:688772) as a stock to potentially avoid with its 42.6x 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.

With earnings growth that's superior to most other companies of late, Zhuhai CosMX Battery has been doing relatively well. 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 Zhuhai CosMX Battery

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

How Is Zhuhai CosMX Battery's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Zhuhai CosMX Battery's is when the company's growth is on track to outshine the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 275% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 64% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 176% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 36%, which is noticeably less attractive.

In light of this, it's understandable that Zhuhai CosMX Battery's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Zhuhai CosMX Battery'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.

As we suspected, our examination of Zhuhai CosMX Battery's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Zhuhai CosMX Battery that you should be aware of.

Of course, you might also be able to find a better stock than Zhuhai CosMX Battery. 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.