After Leaping 53% Kunshan Kinglai Hygienic Materials Co.,Ltd. (SZSE:300260) Shares Are Not Flying Under The Radar

Kunshan Kinglai Hygienic Materials Co.,Ltd. (SZSE:300260) shareholders would be excited to see that the share price has had a great month, posting a 53% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 37x, you may consider Kunshan Kinglai Hygienic MaterialsLtd as a stock to avoid entirely with its 59.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's superior to most other companies of late, Kunshan Kinglai Hygienic MaterialsLtd has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Kunshan Kinglai Hygienic MaterialsLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Kunshan Kinglai Hygienic MaterialsLtd.

How Is Kunshan Kinglai Hygienic MaterialsLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Kunshan Kinglai Hygienic MaterialsLtd's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.3% last year. The latest three year period has also seen an excellent 48% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 71% during the coming year according to the two analysts following the company. With the market only predicted to deliver 36%, the company is positioned for a stronger earnings result.

With this information, we can see why Kunshan Kinglai Hygienic MaterialsLtd 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 Final Word

The strong share price surge has got Kunshan Kinglai Hygienic MaterialsLtd's P/E rushing to great heights as well. 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 Kunshan Kinglai Hygienic MaterialsLtd 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.

It is also worth noting that we have found 2 warning signs for Kunshan Kinglai Hygienic MaterialsLtd that you need to take into consideration.

If you're unsure about the strength of Kunshan Kinglai Hygienic MaterialsLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.