Beijing eGOVA Co,. Ltd (SZSE:300075) Stocks Shoot Up 35% But Its P/E Still Looks Reasonable

Beijing eGOVA Co,. Ltd (SZSE:300075) shareholders are no doubt pleased to see that the share price has bounced 35% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

After such a large jump in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Beijing eGOVA Co as a stock to potentially avoid with its 35.3x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Beijing eGOVA Co has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Beijing eGOVA Co

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

Is There Enough Growth For Beijing eGOVA Co?

In order to justify its P/E ratio, Beijing eGOVA Co would need to produce impressive growth in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 8.0%. Still, the latest three year period has seen an excellent 97% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 58% during the coming year according to the only analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 41%, which is noticeably less attractive.

In light of this, it's understandable that Beijing eGOVA Co'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 Bottom Line On Beijing eGOVA Co's P/E

The large bounce in Beijing eGOVA Co's shares has lifted the company's P/E to a fairly high level. 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.

As we suspected, our examination of Beijing eGOVA Co'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. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Beijing eGOVA Co with six simple checks.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.