Shenzhen Kingdom Sci-Tech Co., Ltd's (SHSE:600446) P/E Is Still On The Mark Following 30% Share Price Bounce

Shenzhen Kingdom Sci-Tech Co., Ltd (SHSE:600446) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Shenzhen Kingdom Sci-Tech as a stock to avoid entirely with its 73.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Shenzhen Kingdom Sci-Tech 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Shenzhen Kingdom Sci-Tech

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Kingdom Sci-Tech.

How Is Shenzhen Kingdom Sci-Tech's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Shenzhen Kingdom Sci-Tech's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.5% last year. Still, lamentably EPS has fallen 59% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 150% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

In light of this, it's understandable that Shenzhen Kingdom Sci-Tech's 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 Bottom Line On Shenzhen Kingdom Sci-Tech's P/E

The strong share price surge has got Shenzhen Kingdom Sci-Tech's P/E rushing to great heights as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Shenzhen Kingdom Sci-Tech's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Shenzhen Kingdom Sci-Tech.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.