Why Investors Shouldn't Be Surprised By Chongqing Mas Sci.&Tech.Co.,Ltd.'s (SZSE:300275) 37% Share Price Surge

Chongqing Mas Sci.&Tech.Co.,Ltd. (SZSE:300275) shareholders have had their patience rewarded with a 37% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 20% over that time.

Following the firm bounce in price, Chongqing Mas Sci.&Tech.Co.Ltd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 69.7x, since almost half of all companies in China have P/E ratios under 32x and even P/E's lower than 20x are not unusual. 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, Chongqing Mas Sci.&Tech.Co.Ltd 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 Chongqing Mas Sci.&Tech.Co.Ltd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Chongqing Mas Sci.&Tech.Co.Ltd.

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Chongqing Mas Sci.&Tech.Co.Ltd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 25%. Pleasingly, EPS has also lifted 53% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 34% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 26% per annum, which is noticeably less attractive.

With this information, we can see why Chongqing Mas Sci.&Tech.Co.Ltd 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 Key Takeaway

Chongqing Mas Sci.&Tech.Co.Ltd's P/E is flying high just like its stock has during the last month. 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 Chongqing Mas Sci.&Tech.Co.Ltd'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. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Chongqing Mas Sci.&Tech.Co.Ltd with six simple checks.

If you're unsure about the strength of Chongqing Mas Sci.&Tech.Co.Ltd'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.