Sunny Loan Top Co.,Ltd. (SHSE:600830) Shares Slammed 25% But Getting In Cheap Might Be Difficult Regardless

Sunny Loan Top Co.,Ltd. (SHSE:600830) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 27% in the last year.

Although its price has dipped substantially, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 33x, you may still consider Sunny Loan TopLtd as a stock to avoid entirely with its 70.8x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Sunny Loan TopLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Sunny Loan TopLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sunny Loan TopLtd's earnings, revenue and cash flow.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Sunny Loan TopLtd would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 325% gain to the company's bottom line. Pleasingly, EPS has also lifted 398% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 38% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Sunny Loan TopLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

Even after such a strong price drop, Sunny Loan TopLtd's P/E still exceeds the rest of the market significantly. 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.

We've established that Sunny Loan TopLtd maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Sunny Loan TopLtd that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.