Why We're Not Concerned About Xiamen Comfort Science&Technology Group Co., Ltd's (SZSE:002614) Share Price

Xiamen Comfort Science&Technology Group Co., Ltd's (SZSE:002614) price-to-earnings (or "P/E") ratio of 75.2x 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 34x and even P/E's below 20x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Xiamen Comfort Science&Technology Group has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Xiamen Comfort Science&Technology Group

Keen to find out how analysts think Xiamen Comfort Science&Technology Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Xiamen Comfort Science&Technology Group?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Xiamen Comfort Science&Technology Group's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 51%. This means it has also seen a slide in earnings over the longer-term as EPS is down 86% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 169% during the coming year according to the three analysts following the company. With the market only predicted to deliver 39%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Xiamen Comfort Science&Technology Group's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Xiamen Comfort Science&Technology Group's P/E?

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 Xiamen Comfort Science&Technology Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Xiamen Comfort Science&Technology Group you should be aware of, and 1 of them doesn't sit too well with us.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.