Longhua Technology Group Co.,Ltd. (SZSE:300263) Not Flying Under The Radar
When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 32x, you may consider Longhua Technology Group Co.,Ltd. (SZSE:300263) as a stock to avoid entirely with its 57.6x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
With earnings growth that's superior to most other companies of late, Longhua Technology GroupLtd has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
See our latest analysis for Longhua Technology GroupLtd
How Is Longhua Technology GroupLtd's Growth Trending?
In order to justify its P/E ratio, Longhua Technology GroupLtd would need to produce outstanding growth well in excess of the market.
Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 56% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 56% per year during the coming three years according to the four analysts following the company. That's shaping up to be materially higher than the 26% per annum growth forecast for the broader market.
With this information, we can see why Longhua Technology GroupLtd 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 Bottom Line On Longhua Technology GroupLtd's P/E
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of Longhua Technology GroupLtd'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. Unless these conditions change, they will continue to provide strong support to the share price.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Longhua Technology GroupLtd with six simple checks on some of these key factors.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
About SZSE:300263
Longhua Technology GroupLtd
Manufactures and sells heat transfer and energy-saving equipment in China.
Reasonable growth potential with proven track record.
