Shenzhen Ellassay Fashion Co.,Ltd.'s (SHSE:603808) Popularity With Investors Is Clear

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Shenzhen Ellassay Fashion Co.,Ltd. (SHSE:603808) as a stock to potentially avoid with its 34x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Shenzhen Ellassay FashionLtd 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 recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for Shenzhen Ellassay FashionLtd

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

How Is Shenzhen Ellassay FashionLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Shenzhen Ellassay FashionLtd's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 42% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 84% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 269% over the next year. With the market only predicted to deliver 36%, the company is positioned for a stronger earnings result.

With this information, we can see why Shenzhen Ellassay FashionLtd 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 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 Shenzhen Ellassay FashionLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Shenzhen Ellassay FashionLtd that you need to be mindful of.

If you're unsure about the strength of Shenzhen Ellassay FashionLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.