GRIPM Advanced Materials Co., Ltd. (SHSE:688456) Stocks Shoot Up 26% But Its P/E Still Looks Reasonable

Despite an already strong run, GRIPM Advanced Materials Co., Ltd. (SHSE:688456) shares have been powering on, with a gain of 26% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 9.8% isn't as impressive.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 32x, you may consider GRIPM Advanced Materials as a stock to avoid entirely with its 64.1x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, GRIPM Advanced Materials has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for GRIPM Advanced Materials

Want the full picture on analyst estimates for the company? Then our free report on GRIPM Advanced Materials will help you uncover what's on the horizon.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as GRIPM Advanced Materials' is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.1% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 70% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 31% per annum as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 26% per year, which is noticeably less attractive.

With this information, we can see why GRIPM Advanced Materials is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From GRIPM Advanced Materials' P/E?

GRIPM Advanced Materials' P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of GRIPM Advanced Materials' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for GRIPM Advanced Materials that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.