Investors Interested In Guangdong Hoshion Industrial Aluminium Co., Ltd.'s (SZSE:002824) Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 35x, you may consider Guangdong Hoshion Industrial Aluminium Co., Ltd. (SZSE:002824) as a stock to potentially avoid with its 51.8x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Guangdong Hoshion Industrial Aluminium has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Guangdong Hoshion Industrial Aluminium

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How Is Guangdong Hoshion Industrial Aluminium's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Guangdong Hoshion Industrial Aluminium's is when the company's growth is on track to outshine the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 42%. The last three years don't look nice either as the company has shrunk EPS by 51% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 38% per annum during the coming three years according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 20% per annum, which is noticeably less attractive.

With this information, we can see why Guangdong Hoshion Industrial Aluminium 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 Guangdong Hoshion Industrial Aluminium's P/E

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 Guangdong Hoshion Industrial Aluminium's 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. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Guangdong Hoshion Industrial Aluminium that we have uncovered.

If these risks are making you reconsider your opinion on Guangdong Hoshion Industrial Aluminium, 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.