Investors Appear Satisfied With Chongqing Baiya Sanitary Products Co., Ltd.'s (SZSE:003006) Prospects As Shares Rocket 28%

Despite an already strong run, Chongqing Baiya Sanitary Products Co., Ltd. (SZSE:003006) shares have been powering on, with a gain of 28% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

Since its price has surged higher, Chongqing Baiya Sanitary Products may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 38.3x, since almost half of all companies in China have P/E ratios under 30x and even P/E's lower than 19x 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 advantageous for Chongqing Baiya Sanitary Products as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Chongqing Baiya Sanitary Products

Keen to find out how analysts think Chongqing Baiya Sanitary Products' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The High P/E?

Chongqing Baiya Sanitary Products' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 27% gain to the company's bottom line. As a result, it also grew EPS by 21% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 26% per annum over the next three years. That's shaping up to be materially higher than the 21% each year growth forecast for the broader market.

With this information, we can see why Chongqing Baiya Sanitary Products is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Chongqing Baiya Sanitary Products' P/E

The large bounce in Chongqing Baiya Sanitary Products' shares has lifted the company's P/E to a fairly high level. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Chongqing Baiya Sanitary Products' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Chongqing Baiya Sanitary Products you should know about.

If these risks are making you reconsider your opinion on Chongqing Baiya Sanitary Products, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.