Market Participants Recognise Qingdao TGOOD Electric Co., Ltd.'s (SZSE:300001) Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 27x, you may consider Qingdao TGOOD Electric Co., Ltd. (SZSE:300001) as a stock to potentially avoid with its 36x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Qingdao TGOOD Electric 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.

See our latest analysis for Qingdao TGOOD Electric

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

How Is Qingdao TGOOD Electric's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 105%. The latest three year period has also seen an excellent 76% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 28% each year during the coming three years according to the twelve analysts following the company. With the market only predicted to deliver 23% each year, the company is positioned for a stronger earnings result.

With this information, we can see why Qingdao TGOOD Electric 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

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.

We've established that Qingdao TGOOD Electric maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Qingdao TGOOD Electric with six simple checks.

You might be able to find a better investment than Qingdao TGOOD Electric. 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.