Investors Appear Satisfied With Kunshan Kinglai Hygienic Materials Co.,Ltd.'s (SZSE:300260) Prospects

Kunshan Kinglai Hygienic Materials Co.,Ltd.'s (SZSE:300260) price-to-earnings (or "P/E") ratio of 37.8x might make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 31x and even P/E's below 18x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Kunshan Kinglai Hygienic MaterialsLtd as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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?

In order to justify its P/E ratio, Kunshan Kinglai Hygienic MaterialsLtd would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a decent 12% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 69% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 46% over the next year. That's shaping up to be materially higher than the 38% growth forecast for the broader market.

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

What We Can Learn From Kunshan Kinglai Hygienic MaterialsLtd's P/E?

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 Kunshan Kinglai Hygienic MaterialsLtd'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.

Plus, you should also learn about this 1 warning sign we've spotted with Kunshan Kinglai Hygienic MaterialsLtd.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.