Some Shareholders Feeling Restless Over Aecc Aero-Engine Control Co.,Ltd.'s (SZSE:000738) P/E Ratio

With a price-to-earnings (or "P/E") ratio of 36.5x Aecc Aero-Engine Control Co.,Ltd. (SZSE:000738) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 27x and even P/E's lower than 17x are not unusual. 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, Aecc Aero-Engine ControlLtd 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.

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How Is Aecc Aero-Engine ControlLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Aecc Aero-Engine ControlLtd's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a decent 3.7% gain to the company's bottom line. Pleasingly, EPS has also lifted 59% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 17% each year during the coming three years according to the six analysts following the company. With the market predicted to deliver 24% growth each year, the company is positioned for a weaker earnings result.

With this information, we find it concerning that Aecc Aero-Engine ControlLtd is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Aecc Aero-Engine ControlLtd's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Aecc Aero-Engine ControlLtd currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Aecc Aero-Engine ControlLtd you should know about.

You might be able to find a better investment than Aecc Aero-Engine ControlLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

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