Investors Appear Satisfied With Sineng Electric Co.,Ltd.'s (SZSE:300827) Prospects As Shares Rocket 27%

Sineng Electric Co.,Ltd. (SZSE:300827) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 21% over that time.

After such a large jump in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 28x, you may consider Sineng ElectricLtd as a stock to potentially avoid with its 34.9x 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 Sineng ElectricLtd 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.

Check out our latest analysis for Sineng ElectricLtd

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How Is Sineng ElectricLtd's Growth Trending?

In order to justify its P/E ratio, Sineng ElectricLtd would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 178% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 285% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 48% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 24% per annum, which is noticeably less attractive.

With this information, we can see why Sineng ElectricLtd 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 Sineng ElectricLtd's P/E

The large bounce in Sineng ElectricLtd's shares has lifted the company's P/E to a fairly high level. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Sineng ElectricLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Sineng ElectricLtd you should be aware of.

If these risks are making you reconsider your opinion on Sineng ElectricLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com