Dalian Insulator Group Co., Ltd (SZSE:002606) Looks Just Right With A 36% Price Jump

The Dalian Insulator Group Co., Ltd (SZSE:002606) share price has done very well over the last month, posting an excellent gain of 36%. The last 30 days bring the annual gain to a very sharp 42%.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 32x, you may consider Dalian Insulator Group as a stock to avoid entirely with its 51.2x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Dalian Insulator Group as its earnings have been falling quicker than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Dalian Insulator Group

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

How Is Dalian Insulator Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Dalian Insulator Group's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 18%. As a result, earnings from three years ago have also fallen 45% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 52% each year as estimated by the one analyst watching the company. With the market only predicted to deliver 19% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Dalian Insulator Group 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.

What We Can Learn From Dalian Insulator Group's P/E?

Dalian Insulator Group's P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

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

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Dalian Insulator Group that you should be aware of.

Of course, you might also be able to find a better stock than Dalian Insulator Group. 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.