Investors Appear Satisfied With Doctorglasses Chain Co.,Ltd.'s (SZSE:300622) Prospects As Shares Rocket 38%

Doctorglasses Chain Co.,Ltd. (SZSE:300622) shares have had a really impressive month, gaining 38% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 22% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Doctorglasses ChainLtd's P/E ratio of 25.3x, since the median price-to-earnings (or "P/E") ratio in China is also close to 27x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, Doctorglasses ChainLtd has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Doctorglasses ChainLtd

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How Is Doctorglasses ChainLtd's Growth Trending?

Doctorglasses ChainLtd's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.3% last year. The solid recent performance means it was also able to grow EPS by 15% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 22% per year as estimated by the dual analysts watching the company. That's shaping up to be similar to the 24% per year growth forecast for the broader market.

In light of this, it's understandable that Doctorglasses ChainLtd's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Doctorglasses ChainLtd's P/E

Its shares have lifted substantially and now Doctorglasses ChainLtd's P/E is also back up to the market median. 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 Doctorglasses ChainLtd maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Doctorglasses ChainLtd, and understanding these should be part of your investment process.

You might be able to find a better investment than Doctorglasses ChainLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

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