Earnings Tell The Story For Shandong Linuo Technical Glass Co.,Ltd. (SZSE:301188) As Its Stock Soars 27%

Shandong Linuo Technical Glass Co.,Ltd. (SZSE:301188) shareholders have had their patience rewarded with a 27% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 3.7% isn't as impressive.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 32x, you may consider Shandong Linuo Technical GlassLtd as a stock to avoid entirely with its 64.6x 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 so lofty.

While the market has experienced earnings growth lately, Shandong Linuo Technical GlassLtd's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Shandong Linuo Technical GlassLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shandong Linuo Technical GlassLtd.

Is There Enough Growth For Shandong Linuo Technical GlassLtd?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Shandong Linuo Technical GlassLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 44% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 45% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 77% per year over the next three years. With the market only predicted to deliver 26% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Shandong Linuo Technical GlassLtd'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 Key Takeaway

The strong share price surge has got Shandong Linuo Technical GlassLtd's P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Shandong Linuo Technical GlassLtd 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.

Having said that, be aware Shandong Linuo Technical GlassLtd is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Shandong Linuo Technical GlassLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.