Investors Appear Satisfied With Shanghai Haoyuan Chemexpress Co., Ltd.'s (SHSE:688131) Prospects

With a price-to-earnings (or "P/E") ratio of 47.5x Shanghai Haoyuan Chemexpress Co., Ltd. (SHSE:688131) may be sending very bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 28x and even P/E's lower than 17x 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.

While the market has experienced earnings growth lately, Shanghai Haoyuan Chemexpress' earnings have gone into reverse gear, which is not great. 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.

Check out our latest analysis for Shanghai Haoyuan Chemexpress

Keen to find out how analysts think Shanghai Haoyuan Chemexpress' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Shanghai Haoyuan Chemexpress?

Shanghai Haoyuan Chemexpress' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 46%. As a result, earnings from three years ago have also fallen 55% overall. 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 51% each year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 25% per year growth forecast for the broader market.

In light of this, it's understandable that Shanghai Haoyuan Chemexpress' 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 Final Word

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 Shanghai Haoyuan Chemexpress 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for Shanghai Haoyuan Chemexpress you should be aware of.

You might be able to find a better investment than Shanghai Haoyuan Chemexpress. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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