Shanghai Ailu Package Co., Ltd.'s (SZSE:301062) 27% Jump Shows Its Popularity With Investors

Those holding Shanghai Ailu Package Co., Ltd. (SZSE:301062) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, despite the strong performance over the last month, the full year gain of 3.9% isn't as attractive.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 31x, you may consider Shanghai Ailu Package as a stock to avoid entirely with its 54.3x 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.

While the market has experienced earnings growth lately, Shanghai Ailu Package's earnings have gone into reverse gear, which is not great. It might be that many expect the dour 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.

Check out our latest analysis for Shanghai Ailu Package

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Ailu Package.

How Is Shanghai Ailu Package's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Shanghai Ailu Package's to be considered reasonable.

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 33%. This means it has also seen a slide in earnings over the longer-term as EPS is down 30% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 58% during the coming year according to the lone analyst following the company. With the market only predicted to deliver 39%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Shanghai Ailu Package's 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

Shanghai Ailu Package's P/E is flying high just like its stock has during the last month. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Shanghai Ailu Package'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 1 warning sign for Shanghai Ailu Package that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.