After Leaping 33% Levima Advanced Materials Corporation (SZSE:003022) Shares Are Not Flying Under The Radar

Levima Advanced Materials Corporation (SZSE:003022) shareholders are no doubt pleased to see that the share price has bounced 33% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 47% over that time.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Levima Advanced Materials as a stock to avoid entirely with its 46.6x 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 that are retreating more than the market's of late, Levima Advanced Materials has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Levima Advanced Materials

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Levima Advanced Materials.

How Is Levima Advanced Materials' Growth Trending?

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

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 53%. As a result, earnings from three years ago have also fallen 20% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 67% during the coming year according to the one analyst following the company. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Levima Advanced Materials' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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

We've established that Levima Advanced Materials maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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 settle on your opinion, we've discovered 4 warning signs for Levima Advanced Materials (2 are potentially serious!) that you should be aware 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.