Potential Upside For Zhejiang Sunriver Culture Tourism Co.,Ltd. (SHSE:600576) Not Without Risk

It's not a stretch to say that Zhejiang Sunriver Culture Tourism Co.,Ltd.'s (SHSE:600576) price-to-earnings (or "P/E") ratio of 29x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 27x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been advantageous for Zhejiang Sunriver Culture TourismLtd as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Zhejiang Sunriver Culture TourismLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Sunriver Culture TourismLtd.

What Are Growth Metrics Telling Us About The P/E?

The only time you'd be comfortable seeing a P/E like Zhejiang Sunriver Culture TourismLtd's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 114% last year. Pleasingly, EPS has also lifted 336% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 32% per year over the next three years. That's shaping up to be materially higher than the 24% per annum growth forecast for the broader market.

With this information, we find it interesting that Zhejiang Sunriver Culture TourismLtd is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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 Zhejiang Sunriver Culture TourismLtd currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Zhejiang Sunriver Culture TourismLtd with six simple checks.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com