It's A Story Of Risk Vs Reward With YanKer shop Food Co.,Ltd (SZSE:002847)

It's not a stretch to say that YanKer shop Food Co.,Ltd's (SZSE:002847) price-to-earnings (or "P/E") ratio of 28.8x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 31x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for YanKer shop FoodLtd as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for YanKer shop FoodLtd

Want the full picture on analyst estimates for the company? Then our free report on YanKer shop FoodLtd will help you uncover what's on the horizon.

How Is YanKer shop FoodLtd's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like YanKer shop FoodLtd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 62% last year. The strong recent performance means it was also able to grow EPS by 102% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 24% per annum during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 21% per annum, which is noticeably less attractive.

With this information, we find it interesting that YanKer shop FoodLtd is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On YanKer shop FoodLtd'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.

Our examination of YanKer shop FoodLtd'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. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware YanKer shop FoodLtd is showing 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

If you're unsure about the strength of YanKer shop FoodLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.