The Price Is Right For Shanghai Weihong Electronic Technology Co., Ltd. (SZSE:300508)

With a price-to-earnings (or "P/E") ratio of 75.9x Shanghai Weihong Electronic Technology Co., Ltd. (SZSE:300508) may be sending very bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 29x and even P/E's lower than 18x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Shanghai Weihong Electronic Technology has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Shanghai Weihong Electronic Technology

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Is There Enough Growth For Shanghai Weihong Electronic Technology?

In order to justify its P/E ratio, Shanghai Weihong Electronic Technology would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 54% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 60% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 77% per annum during the coming three years according to the sole analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 19% each year, which is noticeably less attractive.

In light of this, it's understandable that Shanghai Weihong Electronic Technology's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Shanghai Weihong Electronic Technology's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Shanghai Weihong Electronic Technology 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Shanghai Weihong Electronic Technology is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Shanghai Weihong Electronic Technology'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.