Sanhe Tongfei Refrigeration Co., Ltd.'s (SZSE:300990) P/E Is On The Mark

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 35x, you may consider Sanhe Tongfei Refrigeration Co., Ltd. (SZSE:300990) as a stock to avoid entirely with its 60x P/E ratio. 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, Sanhe Tongfei Refrigeration has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Sanhe Tongfei Refrigeration

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

Is There Enough Growth For Sanhe Tongfei Refrigeration?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Sanhe Tongfei Refrigeration's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 40%. As a result, earnings from three years ago have also fallen 28% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 153% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 38% growth forecast for the broader market.

In light of this, it's understandable that Sanhe Tongfei Refrigeration'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 Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Sanhe Tongfei Refrigeration's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Sanhe Tongfei Refrigeration you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.