What Hangzhou Onechance Tech Crop.'s (SZSE:300792) P/E Is Not Telling You

Hangzhou Onechance Tech Crop.'s (SZSE:300792) price-to-earnings (or "P/E") ratio of 42.8x might make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 31x and even P/E's below 19x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Hangzhou Onechance Tech Crop hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Hangzhou Onechance Tech Crop

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hangzhou Onechance Tech Crop.

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

The only time you'd be truly comfortable seeing a P/E as high as Hangzhou Onechance Tech Crop's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 44% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 73% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 25% each year, which is noticeably more attractive.

With this information, we find it concerning that Hangzhou Onechance Tech Crop is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Hangzhou Onechance Tech Crop's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Hangzhou Onechance Tech Crop's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Hangzhou Onechance Tech Crop that you need to take into consideration.

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.