Mingyue Optical Lens Co.,Ltd.'s (SZSE:301101) 39% Share Price Surge Not Quite Adding Up

The Mingyue Optical Lens Co.,Ltd. (SZSE:301101) share price has done very well over the last month, posting an excellent gain of 39%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.0% in the last twelve months.

After such a large jump in price, Mingyue Optical LensLtd may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 43.8x, since almost half of all companies in China have P/E ratios under 34x and even P/E's lower than 20x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been pleasing for Mingyue Optical LensLtd as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Mingyue Optical LensLtd

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

Is There Enough Growth For Mingyue Optical LensLtd?

In order to justify its P/E ratio, Mingyue Optical LensLtd would need to produce impressive growth in excess of the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. However, a few strong years before that means that it was still able to grow EPS by an impressive 48% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 17% over the next year. Meanwhile, the rest of the market is forecast to expand by 39%, which is noticeably more attractive.

In light of this, it's alarming that Mingyue Optical LensLtd's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Mingyue Optical LensLtd shares have received a push in the right direction, but its P/E is elevated too. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Mingyue Optical LensLtd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 2 warning signs for Mingyue Optical LensLtd (1 can't be ignored!) that we have uncovered.

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

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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.