Ningbo Fujia Industrial Co., Ltd.'s (SHSE:603219) 29% Share Price Surge Not Quite Adding Up

Ningbo Fujia Industrial Co., Ltd. (SHSE:603219) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 83%.

Following the firm bounce in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 36x, you may consider Ningbo Fujia Industrial as a stock to potentially avoid with its 45.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With earnings that are retreating more than the market's of late, Ningbo Fujia Industrial has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Ningbo Fujia Industrial

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

Is There Enough Growth For Ningbo Fujia Industrial?

There's an inherent assumption that a company should outperform the market for P/E ratios like Ningbo Fujia Industrial's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 26% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 33% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 37% growth forecast for the broader market.

With this information, we find it concerning that Ningbo Fujia Industrial is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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 Bottom Line On Ningbo Fujia Industrial's P/E

Ningbo Fujia Industrial's P/E is getting right up there since its shares have risen strongly. 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.

We've established that Ningbo Fujia Industrial 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. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Ningbo Fujia Industrial has 1 warning sign we think you should be aware of.

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

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.