Market Might Still Lack Some Conviction On Shanghai Action Education Technology CO.,LTD. (SHSE:605098) Even After 31% Share Price Boost

Shanghai Action Education Technology CO.,LTD. (SHSE:605098) shares have continued their recent momentum with a 31% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 61%.

Although its price has surged higher, there still wouldn't be many who think Shanghai Action Education TechnologyLTD's price-to-earnings (or "P/E") ratio of 29x is worth a mention when the median P/E in China is similar at about 30x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's superior to most other companies of late, Shanghai Action Education TechnologyLTD has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Shanghai Action Education TechnologyLTD

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Action Education TechnologyLTD.

What Are Growth Metrics Telling Us About The P/E?

Shanghai Action Education TechnologyLTD's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 84%. The latest three year period has also seen an excellent 84% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 23% each year as estimated by the six analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 21% per year, which is noticeably less attractive.

In light of this, it's curious that Shanghai Action Education TechnologyLTD's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Shanghai Action Education TechnologyLTD's P/E?

Its shares have lifted substantially and now Shanghai Action Education TechnologyLTD's P/E is also back up to the market median. 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 Shanghai Action Education TechnologyLTD's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

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

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.