Why Investors Shouldn't Be Surprised By Crystal Growth & Energy Equipment Co.,Ltd.'s (SHSE:688478) 27% Share Price Surge

Crystal Growth & Energy Equipment Co.,Ltd. (SHSE:688478) shares have continued their recent momentum with a 27% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 22% in the last twelve months.

After such a large jump in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 36x, you may consider Crystal Growth & Energy EquipmentLtd as a stock to avoid entirely with its 59.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been pleasing for Crystal Growth & Energy EquipmentLtd as its earnings have risen in spite of the market's earnings going into reverse. 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 Crystal Growth & Energy EquipmentLtd

Keen to find out how analysts think Crystal Growth & Energy EquipmentLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

Crystal Growth & Energy EquipmentLtd's 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.

Retrospectively, the last year delivered an exceptional 21% gain to the company's bottom line. As a result, it also grew EPS by 23% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 76% during the coming year according to the three analysts following the company. With the market only predicted to deliver 40%, the company is positioned for a stronger earnings result.

With this information, we can see why Crystal Growth & Energy EquipmentLtd 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.

What We Can Learn From Crystal Growth & Energy EquipmentLtd's P/E?

Shares in Crystal Growth & Energy EquipmentLtd have built up some good momentum lately, which has really inflated its P/E. 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 Crystal Growth & Energy EquipmentLtd'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.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Crystal Growth & Energy EquipmentLtd (1 is potentially serious!) that you should be aware of before investing here.

If you're unsure about the strength of Crystal Growth & Energy EquipmentLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.