Shanghai Haoyuan Chemexpress Co., Ltd.'s (SHSE:688131) 25% Jump Shows Its Popularity With Investors

Shanghai Haoyuan Chemexpress Co., Ltd. (SHSE:688131) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 32% in the last twelve months.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 25x, you may consider Shanghai Haoyuan Chemexpress as a stock to avoid entirely with its 50.4x 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 has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Shanghai Haoyuan Chemexpress

Want the full picture on analyst estimates for the company? Then our free report on Shanghai Haoyuan Chemexpress will help you uncover what's on the horizon.

Is There Enough Growth For Shanghai Haoyuan Chemexpress?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Shanghai Haoyuan Chemexpress' to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 41%. The last three years don't look nice either as the company has shrunk EPS by 58% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 45% per year during the coming three years according to the three analysts following the company. With the market only predicted to deliver 19% per year, the company is positioned for a stronger earnings result.

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.

What We Can Learn From Shanghai Haoyuan Chemexpress' P/E?

The strong share price surge has got Shanghai Haoyuan Chemexpress' P/E rushing to great heights as well. 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.

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. It's hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example - Shanghai Haoyuan Chemexpress has 2 warning signs (and 1 which is significant) we think you should know about.

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.