Wuhan DR Laser Technology Corp.,Ltd's (SZSE:300776) 31% Share Price Surge Not Quite Adding Up

Wuhan DR Laser Technology Corp.,Ltd (SZSE:300776) shares have continued their recent momentum with a 31% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 25% in the last year.

Since its price has surged higher, Wuhan DR Laser TechnologyLtd may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 42.7x, since almost half of all companies in China have P/E ratios under 36x and even P/E's lower than 21x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Wuhan DR Laser TechnologyLtd has been doing quite well of late. 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.

See our latest analysis for Wuhan DR Laser TechnologyLtd

Keen to find out how analysts think Wuhan DR Laser TechnologyLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Wuhan DR Laser TechnologyLtd?

Wuhan DR Laser TechnologyLtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 23%. As a result, it also grew EPS by 27% 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 35% during the coming year according to the six analysts following the company. That's shaping up to be materially lower than the 40% growth forecast for the broader market.

In light of this, it's alarming that Wuhan DR Laser TechnologyLtd's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Wuhan DR Laser TechnologyLtd's P/E?

Wuhan DR Laser TechnologyLtd shares have received a push in the right direction, but its P/E is elevated too. 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.

Our examination of Wuhan DR Laser TechnologyLtd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Wuhan DR Laser TechnologyLtd you should be aware of.

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.