Why Investors Shouldn't Be Surprised By Guangdong KinLong Hardware Products Co.,Ltd.'s (SZSE:002791) P/E

Guangdong KinLong Hardware Products Co.,Ltd.'s (SZSE:002791) price-to-earnings (or "P/E") ratio of 60.7x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 30x and even P/E's below 18x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Guangdong KinLong Hardware ProductsLtd certainly has been doing a good job lately as it's been growing earnings more 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 Guangdong KinLong Hardware ProductsLtd

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

How Is Guangdong KinLong Hardware ProductsLtd's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 86% gain to the company's bottom line. Still, incredibly EPS has fallen 70% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 85% over the next year. Meanwhile, the rest of the market is forecast to only expand by 41%, which is noticeably less attractive.

With this information, we can see why Guangdong KinLong Hardware ProductsLtd 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 Bottom Line On Guangdong KinLong Hardware ProductsLtd'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.

As we suspected, our examination of Guangdong KinLong Hardware ProductsLtd'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. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Guangdong KinLong Hardware ProductsLtd with six simple checks.

You might be able to find a better investment than Guangdong KinLong Hardware ProductsLtd. 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.