Investors Appear Satisfied With State Power Rixin Technology Co., Ltd.'s (SZSE:301162) Prospects As Shares Rocket 26%

The State Power Rixin Technology Co., Ltd. (SZSE:301162) share price has done very well over the last month, posting an excellent gain of 26%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

Following the firm bounce in price, State Power Rixin Technology's price-to-earnings (or "P/E") ratio of 60.7x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 31x and even P/E's below 19x are quite common. 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.

Recent times have been advantageous for State Power Rixin Technology as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for State Power Rixin Technology

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

Is There Enough Growth For State Power Rixin Technology?

There's an inherent assumption that a company should far outperform the market for P/E ratios like State Power Rixin Technology's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. The latest three year period has also seen a 19% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 29% each year during the coming three years according to the nine analysts following the company. With the market only predicted to deliver 26% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that State Power Rixin Technology'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.

What We Can Learn From State Power Rixin Technology's P/E?

The strong share price surge has got State Power Rixin Technology's P/E rushing to great heights as well. 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.

We've established that State Power Rixin Technology maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

Before you settle on your opinion, we've discovered 3 warning signs for State Power Rixin Technology (1 is significant!) that you should be aware of.

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.