Investors Interested In Zhejiang Entive Smart Kitchen Appliance Co., Ltd.'s (SZSE:300911) Earnings

Zhejiang Entive Smart Kitchen Appliance Co., Ltd.'s (SZSE:300911) price-to-earnings (or "P/E") ratio of 48x 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 29x and even P/E's below 18x 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.

Recent times haven't been advantageous for Zhejiang Entive Smart Kitchen Appliance as its earnings have been falling quicker than most other companies. 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.

View our latest analysis for Zhejiang Entive Smart Kitchen Appliance

Keen to find out how analysts think Zhejiang Entive Smart Kitchen Appliance's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Zhejiang Entive Smart Kitchen Appliance?

In order to justify its P/E ratio, Zhejiang Entive Smart Kitchen Appliance would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 69%. The last three years don't look nice either as the company has shrunk EPS by 65% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 44% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 19% each year, which is noticeably less attractive.

With this information, we can see why Zhejiang Entive Smart Kitchen Appliance 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 Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Zhejiang Entive Smart Kitchen Appliance'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. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Zhejiang Entive Smart Kitchen Appliance (2 make us uncomfortable) you should be aware of.

Of course, you might also be able to find a better stock than Zhejiang Entive Smart Kitchen Appliance. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.