Zhejiang Orient Financial Holdings Group Co., Ltd. (SHSE:600120) Looks Just Right With A 27% Price Jump

Despite an already strong run, Zhejiang Orient Financial Holdings Group Co., Ltd. (SHSE:600120) shares have been powering on, with a gain of 27% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

Following the firm bounce in price, Zhejiang Orient Financial Holdings Group's price-to-earnings (or "P/E") ratio of 53.1x 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.

Zhejiang Orient Financial Holdings 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.

Check out our latest analysis for Zhejiang Orient Financial Holdings Group

Keen to find out how analysts think Zhejiang Orient Financial Holdings Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Zhejiang Orient Financial Holdings Group's Growth Trending?

In order to justify its P/E ratio, Zhejiang Orient Financial Holdings Group would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 75% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 72% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 34% per annum as estimated by the lone analyst watching the company. 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 Orient Financial Holdings Group 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

Zhejiang Orient Financial Holdings Group's P/E is flying high just like its stock has during the last month. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Zhejiang Orient Financial Holdings Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. 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 Orient Financial Holdings Group that you should be aware of.

If these risks are making you reconsider your opinion on Zhejiang Orient Financial Holdings Group, 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.