Shandong Shuangyi Technology Co., Ltd.'s (SZSE:300690) Popularity With Investors Under Threat As Stock Sinks 32%

The Shandong Shuangyi Technology Co., Ltd. (SZSE:300690) share price has softened a substantial 32% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 26%, which is great even in a bull market.

In spite of the heavy fall in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 30x, you may still consider Shandong Shuangyi Technology as a stock to potentially avoid with its 37.2x P/E ratio. 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 advantageous for Shandong Shuangyi Technology as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Shandong Shuangyi Technology

Keen to find out how analysts think Shandong Shuangyi Technology's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Shandong Shuangyi Technology's Growth Trending?

Shandong Shuangyi Technology'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 15% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 75% 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 18% each year during the coming three years according to the one analyst following the company. That's shaping up to be materially lower than the 25% each year growth forecast for the broader market.

With this information, we find it concerning that Shandong Shuangyi Technology is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Despite the recent share price weakness, Shandong Shuangyi Technology's P/E remains higher than most other companies. 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.

Our examination of Shandong Shuangyi Technology's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with Shandong Shuangyi Technology (including 1 which is concerning).

Of course, you might also be able to find a better stock than Shandong Shuangyi Technology. 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.