Subdued Growth No Barrier To Guangdong Piano Customized Furniture Co., Ltd. (SZSE:002853) With Shares Advancing 26%

Guangdong Piano Customized Furniture Co., Ltd. (SZSE:002853) shares have continued their recent momentum with a 26% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 22% in the last twelve months.

Since its price has surged higher, Guangdong Piano Customized Furniture's price-to-earnings (or "P/E") ratio of 62.9x 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 36x and even P/E's below 21x 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.

For example, consider that Guangdong Piano Customized Furniture's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for Guangdong Piano Customized Furniture

Although there are no analyst estimates available for Guangdong Piano Customized Furniture, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Guangdong Piano Customized Furniture's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Guangdong Piano Customized Furniture's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 71% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 87% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 39% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Guangdong Piano Customized Furniture is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Guangdong Piano Customized Furniture's P/E

Guangdong Piano Customized Furniture's P/E is flying high just like its stock has during the last month. 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 Guangdong Piano Customized Furniture currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 4 warning signs we've spotted with Guangdong Piano Customized Furniture (including 2 which are a bit concerning).

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

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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.