Pinning Down Beijing Yanjing Brewery Co.,Ltd.'s (SZSE:000729) P/E Is Difficult Right Now

With a price-to-earnings (or "P/E") ratio of 41.5x Beijing Yanjing Brewery Co.,Ltd. (SZSE:000729) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 32x and even P/E's lower than 20x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Beijing Yanjing BreweryLtd as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Beijing Yanjing BreweryLtd

Keen to find out how analysts think Beijing Yanjing BreweryLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Beijing Yanjing BreweryLtd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 63% last year. The latest three year period has also seen an excellent 103% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 24% per year over the next three years. With the market predicted to deliver 26% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's curious that Beijing Yanjing BreweryLtd's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Beijing Yanjing BreweryLtd's P/E

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.

We've established that Beijing Yanjing BreweryLtd currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Beijing Yanjing BreweryLtd that you should be aware of.

Of course, you might also be able to find a better stock than Beijing Yanjing BreweryLtd. 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.