YGSOFT Inc.'s (SZSE:002063) Business Is Yet to Catch Up With Its Share Price

There wouldn't be many who think YGSOFT Inc.'s (SZSE:002063) price-to-earnings (or "P/E") ratio of 26.9x is worth a mention when the median P/E in China is similar at about 27x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been advantageous for YGSOFT as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for YGSOFT

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

Is There Some Growth For YGSOFT?

There's an inherent assumption that a company should be matching the market for P/E ratios like YGSOFT's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 7.4%. Pleasingly, EPS has also lifted 31% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 20% during the coming year according to the lone analyst following the company. That's shaping up to be materially lower than the 36% growth forecast for the broader market.

With this information, we find it interesting that YGSOFT is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On YGSOFT's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of YGSOFT's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for YGSOFT with six simple checks.

You might be able to find a better investment than YGSOFT. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.