Market Participants Recognise Beijing Beimo High-tech Frictional Material Co.,Ltd's (SZSE:002985) Earnings

Beijing Beimo High-tech Frictional Material Co.,Ltd's (SZSE:002985) price-to-earnings (or "P/E") ratio of 42.3x 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 27x and even P/E's below 16x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Beijing Beimo High-tech Frictional MaterialLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Beijing Beimo High-tech Frictional MaterialLtd

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How Is Beijing Beimo High-tech Frictional MaterialLtd's Growth Trending?

Beijing Beimo High-tech Frictional MaterialLtd's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 47% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 58% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 41% each year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 24% per year growth forecast for the broader market.

With this information, we can see why Beijing Beimo High-tech Frictional MaterialLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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 Beijing Beimo High-tech Frictional MaterialLtd'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.

You always need to take note of risks, for example - Beijing Beimo High-tech Frictional MaterialLtd has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Beijing Beimo High-tech Frictional MaterialLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.