Earnings Tell The Story For ShenZhen Click Technology Co.,LTD. (SZSE:002782)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 28x, you may consider ShenZhen Click Technology Co.,LTD. (SZSE:002782) as a stock to potentially avoid with its 37.5x 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.

Recent times have been advantageous for ShenZhen Click TechnologyLTD as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for ShenZhen Click TechnologyLTD

Want the full picture on analyst estimates for the company? Then our free report on ShenZhen Click TechnologyLTD will help you uncover what's on the horizon.

Is There Enough Growth For ShenZhen Click TechnologyLTD?

There's an inherent assumption that a company should outperform the market for P/E ratios like ShenZhen Click TechnologyLTD's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 10.0%. Still, lamentably EPS has fallen 23% in aggregate from three years ago, which is disappointing. 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 59% per annum during the coming three years according to the one analyst following the company. With the market only predicted to deliver 25% each year, the company is positioned for a stronger earnings result.

With this information, we can see why ShenZhen Click TechnologyLTD 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 Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of ShenZhen Click TechnologyLTD'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. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware ShenZhen Click TechnologyLTD is showing 2 warning signs in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com