Earnings Tell The Story For Hubei Feilihua Quartz Glass Co., Ltd. (SZSE:300395)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 36x, you may consider Hubei Feilihua Quartz Glass Co., Ltd. (SZSE:300395) as a stock to potentially avoid with its 51x P/E ratio. 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 haven't been advantageous for Hubei Feilihua Quartz Glass as its earnings have been falling quicker than most other companies. 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. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Hubei Feilihua Quartz Glass

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hubei Feilihua Quartz Glass.

How Is Hubei Feilihua Quartz Glass' Growth Trending?

In order to justify its P/E ratio, Hubei Feilihua Quartz Glass would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 31% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 3.5% in aggregate. 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 year should generate growth of 62% as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 37% growth forecast for the broader market.

With this information, we can see why Hubei Feilihua Quartz Glass 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.

The Key Takeaway

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 Hubei Feilihua Quartz Glass' 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Hubei Feilihua Quartz Glass that you need to be mindful of.

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.