Investors Appear Satisfied With Shenzhen Center Power Tech. Co., Ltd's (SZSE:002733) Prospects

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 34x, you may consider Shenzhen Center Power Tech. Co., Ltd (SZSE:002733) as a stock to avoid entirely with its 63.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

For instance, Shenzhen Center Power Tech's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Shenzhen Center Power Tech

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shenzhen Center Power Tech's earnings, revenue and cash flow.

How Is Shenzhen Center Power Tech's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 64% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 718% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Comparing that to the market, which is only predicted to deliver 38% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Shenzhen Center Power Tech is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Shenzhen Center Power Tech'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 Shenzhen Center Power Tech revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Shenzhen Center Power Tech (of which 1 can't be ignored!) you should know about.

Of course, you might also be able to find a better stock than Shenzhen Center Power Tech. 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.