Shanghai Emperor of Cleaning Hi-Tech Co., Ltd's (SHSE:603200) Popularity With Investors Is Clear

Shanghai Emperor of Cleaning Hi-Tech Co., Ltd's (SHSE:603200) price-to-earnings (or "P/E") ratio of 72.8x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Shanghai Emperor of Cleaning Hi-Tech as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Shanghai Emperor of Cleaning Hi-Tech

Want the full picture on analyst estimates for the company? Then our free report on Shanghai Emperor of Cleaning Hi-Tech will help you uncover what's on the horizon.

Is There Enough Growth For Shanghai Emperor of Cleaning Hi-Tech?

The only time you'd be truly comfortable seeing a P/E as steep as Shanghai Emperor of Cleaning Hi-Tech's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 41% last year. The latest three year period has also seen an excellent 93% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 133% over the next year. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

With this information, we can see why Shanghai Emperor of Cleaning Hi-Tech 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 Final Word

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.

We've established that Shanghai Emperor of Cleaning Hi-Tech 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. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shanghai Emperor of Cleaning Hi-Tech you should know about.

You might be able to find a better investment than Shanghai Emperor of Cleaning Hi-Tech. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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

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.