Tibet GaoZheng Explosive Co., Ltd. (SZSE:002827) Stocks Shoot Up 26% But Its P/E Still Looks Reasonable

Tibet GaoZheng Explosive Co., Ltd. (SZSE:002827) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 46% in the last year.

After such a large jump in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 30x, you may consider Tibet GaoZheng Explosive as a stock to potentially avoid with its 44.5x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Tibet GaoZheng Explosive as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Tibet GaoZheng Explosive

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Tibet GaoZheng Explosive's earnings, revenue and cash flow.

Is There Enough Growth For Tibet GaoZheng Explosive?

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

Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. The latest three year period has also seen an excellent 246% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 41% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Tibet GaoZheng Explosive is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

Tibet GaoZheng Explosive's P/E is getting right up there since its shares have risen strongly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Tibet GaoZheng Explosive revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for Tibet GaoZheng Explosive that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.