Subdued Growth No Barrier To Shenzhen Crastal Technology Co.,Ltd (SZSE:300824) With Shares Advancing 30%

Shenzhen Crastal Technology Co.,Ltd (SZSE:300824) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.5% over the last year.

After such a large jump in price, Shenzhen Crastal TechnologyLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 45.1x, since almost half of all companies in China have P/E ratios under 27x and even P/E's lower than 17x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Shenzhen Crastal TechnologyLtd has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Shenzhen Crastal TechnologyLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Crastal TechnologyLtd.

Does Growth Match The High P/E?

Shenzhen Crastal TechnologyLtd's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 51% gain to the company's bottom line. Still, incredibly EPS has fallen 38% in total from three years ago, which is quite disappointing. 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 three years should generate growth of 19% each year as estimated by the five analysts watching the company. That's shaping up to be similar to the 21% each year growth forecast for the broader market.

In light of this, it's curious that Shenzhen Crastal TechnologyLtd's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Key Takeaway

The strong share price surge has got Shenzhen Crastal TechnologyLtd's P/E rushing to great heights as well. 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.

Our examination of Shenzhen Crastal TechnologyLtd's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 1 warning sign for Shenzhen Crastal TechnologyLtd that you should be aware of.

You might be able to find a better investment than Shenzhen Crastal TechnologyLtd. 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.