Potential Upside For Shenzhen Minglida Precision Technology Co., Ltd. (SZSE:301268) Not Without Risk

There wouldn't be many who think Shenzhen Minglida Precision Technology Co., Ltd.'s (SZSE:301268) price-to-earnings (or "P/E") ratio of 32.9x is worth a mention when the median P/E in China is similar at about 31x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Shenzhen Minglida Precision Technology could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Shenzhen Minglida Precision Technology

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Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Shenzhen Minglida Precision Technology's is when the company's growth is tracking the market closely.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 52%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 13% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 318% as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

In light of this, it's curious that Shenzhen Minglida Precision Technology's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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 Shenzhen Minglida Precision Technology's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Shenzhen Minglida Precision Technology that you should be aware of.

Of course, you might also be able to find a better stock than Shenzhen Minglida Precision 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.