Earnings Tell The Story For Shijiazhuang Tonhe Electronics Technologies Co.,Ltd. (SZSE:300491) As Its Stock Soars 27%

Those holding Shijiazhuang Tonhe Electronics Technologies Co.,Ltd. (SZSE:300491) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.8% in the last twelve months.

Following the firm bounce in price, Shijiazhuang Tonhe Electronics TechnologiesLtd may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 39.2x, since almost half of all companies in China have P/E ratios under 31x and even P/E's lower than 19x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Shijiazhuang Tonhe Electronics TechnologiesLtd has been doing quite well of late. 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.

Check out our latest analysis for Shijiazhuang Tonhe Electronics TechnologiesLtd

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How Is Shijiazhuang Tonhe Electronics TechnologiesLtd's Growth Trending?

Shijiazhuang Tonhe Electronics TechnologiesLtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 124% last year. The strong recent performance means it was also able to grow EPS by 395% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 56% over the next year. That's shaping up to be materially higher than the 40% growth forecast for the broader market.

With this information, we can see why Shijiazhuang Tonhe Electronics TechnologiesLtd 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 Shijiazhuang Tonhe Electronics TechnologiesLtd's P/E

Shijiazhuang Tonhe Electronics TechnologiesLtd's P/E is getting right up there since its shares have risen strongly. 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 Shijiazhuang Tonhe Electronics TechnologiesLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Shijiazhuang Tonhe Electronics TechnologiesLtd (including 1 which is potentially serious).

Of course, you might also be able to find a better stock than Shijiazhuang Tonhe Electronics TechnologiesLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.