Shanghai Haoyuan Chemexpress Co., Ltd. (SHSE:688131) Not Flying Under The Radar

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 36x, you may consider Shanghai Haoyuan Chemexpress Co., Ltd. (SHSE:688131) as a stock to avoid entirely with its 57x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Shanghai Haoyuan Chemexpress' negative earnings growth of late has neither been better nor worse than most other companies. One possibility is that the P/E is high because investors think the company can turn things around and break free from the broader downward trend in earnings. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Shanghai Haoyuan Chemexpress

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Haoyuan Chemexpress.

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

In order to justify its P/E ratio, Shanghai Haoyuan Chemexpress would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 40% overall from three years ago. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 49% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

In light of this, it's understandable that Shanghai Haoyuan Chemexpress' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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.

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. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Shanghai Haoyuan Chemexpress 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.