Funshine Culture Group Co.,Ltd. (SZSE:300860) Stocks Shoot Up 38% But Its P/E Still Looks Reasonable

Despite an already strong run, Funshine Culture Group Co.,Ltd. (SZSE:300860) shares have been powering on, with a gain of 38% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 2.4% over the last year.

Following the firm bounce in price, Funshine Culture GroupLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 69.8x, since almost half of all companies in China have P/E ratios under 37x and even P/E's lower than 22x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Funshine Culture GroupLtd as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Funshine Culture GroupLtd

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Is There Enough Growth For Funshine Culture GroupLtd?

In order to justify its P/E ratio, Funshine Culture GroupLtd would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 292% gain to the company's bottom line. Still, incredibly EPS has fallen 36% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 141% over the next year. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

With this information, we can see why Funshine Culture GroupLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Funshine Culture GroupLtd's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Funshine Culture GroupLtd'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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Funshine Culture GroupLtd (1 is a bit unpleasant) you should be aware of.

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.