Aier Eye Hospital Group Co., Ltd.'s (SZSE:300015) Business Is Yet to Catch Up With Its Share Price

With a median price-to-earnings (or "P/E") ratio of close to 31x in China, you could be forgiven for feeling indifferent about Aier Eye Hospital Group Co., Ltd.'s (SZSE:300015) P/E ratio of 32.3x. 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 Aier Eye Hospital Group 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.

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How Is Aier Eye Hospital Group's Growth Trending?

In order to justify its P/E ratio, Aier Eye Hospital Group would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 58% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 17% per annum during the coming three years according to the analysts following the company. With the market predicted to deliver 25% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's curious that Aier Eye Hospital Group's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Aier Eye Hospital Group's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Aier Eye Hospital Group currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Aier Eye Hospital Group has 1 warning sign we think 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.