Getting In Cheap On Shenzhen Urban Transport Planning Center Co., Ltd. (SZSE:301091) Is Unlikely

Shenzhen Urban Transport Planning Center Co., Ltd.'s (SZSE:301091) price-to-earnings (or "P/E") ratio of 63.9x 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 25x and even P/E's below 15x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Shenzhen Urban Transport Planning Center hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Shenzhen Urban Transport Planning Center

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Urban Transport Planning Center.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Shenzhen Urban Transport Planning Center would need to produce outstanding growth well in excess of the market.

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 6.7%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 15% each year as estimated by the sole analyst watching the company. With the market predicted to deliver 23% growth per year, the company is positioned for a weaker earnings result.

With this information, we find it concerning that Shenzhen Urban Transport Planning Center 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. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Final Word

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 Shenzhen Urban Transport Planning Center currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. 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 Shenzhen Urban Transport Planning Center (including 1 which can't be ignored).

You might be able to find a better investment than Shenzhen Urban Transport Planning Center. 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).

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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.