Shenzhen Mindray Bio-Medical Electronics Co., Ltd.'s (SZSE:300760) Share Price Not Quite Adding Up

There wouldn't be many who think Shenzhen Mindray Bio-Medical Electronics Co., Ltd.'s (SZSE:300760) price-to-earnings (or "P/E") ratio of 28.9x is worth a mention when the median P/E in China is similar at about 29x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been advantageous for Shenzhen Mindray Bio-Medical Electronics 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.

View our latest analysis for Shenzhen Mindray Bio-Medical Electronics

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Mindray Bio-Medical Electronics.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Shenzhen Mindray Bio-Medical Electronics' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 20% last year. The strong recent performance means it was also able to grow EPS by 79% 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.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 18% over the next year. With the market predicted to deliver 35% growth , the company is positioned for a weaker earnings result.

With this information, we find it interesting that Shenzhen Mindray Bio-Medical Electronics is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Shenzhen Mindray Bio-Medical Electronics' 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 Shenzhen Mindray Bio-Medical Electronics' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 1 warning sign for Shenzhen Mindray Bio-Medical Electronics you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.