Why Investors Shouldn't Be Surprised By Imeik Technology Development Co.,Ltd.'s (SZSE:300896) P/E

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 28x, you may consider Imeik Technology Development Co.,Ltd. (SZSE:300896) as a stock to potentially avoid with its 40.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Imeik Technology DevelopmentLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Imeik Technology DevelopmentLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Imeik Technology DevelopmentLtd.

How Is Imeik Technology DevelopmentLtd's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Imeik Technology DevelopmentLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 37%. The latest three year period has also seen an excellent 241% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 28% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 22% per annum, which is noticeably less attractive.

In light of this, it's understandable that Imeik Technology DevelopmentLtd's 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 Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Imeik Technology DevelopmentLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

You always need to take note of risks, for example - Imeik Technology DevelopmentLtd has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than Imeik Technology DevelopmentLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.