Shandong Linuo Technical Glass Co.,Ltd.'s (SZSE:301188) P/E Is Still On The Mark Following 34% Share Price Bounce

Shandong Linuo Technical Glass Co.,Ltd. (SZSE:301188) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

Since its price has surged higher, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 33x, you may consider Shandong Linuo Technical GlassLtd as a stock to potentially avoid with its 45.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Shandong Linuo Technical GlassLtd has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal 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 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.

How Is Shandong Linuo Technical GlassLtd's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 18%. As a result, earnings from three years ago have also fallen 50% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 57% each year during the coming three years according to the four analysts following the company. That's shaping up to be materially higher than the 19% per year growth forecast for the broader market.

With this information, we can see why Shandong Linuo Technical GlassLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The large bounce in Shandong Linuo Technical GlassLtd's shares has lifted the company's P/E to a fairly high level. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

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 2 warning signs 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.