Quectel Wireless Solutions Co., Ltd. (SHSE:603236) Looks Just Right With A 34% Price Jump

Quectel Wireless Solutions Co., Ltd. (SHSE:603236) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 29% in the last year.

Since its price has surged higher, Quectel Wireless Solutions' price-to-earnings (or "P/E") ratio of 35.3x might make it look like a 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 18x 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 as high as it is.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Quectel Wireless Solutions has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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How Is Quectel Wireless Solutions' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Quectel Wireless Solutions' is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 79%. The latest three year period has also seen an excellent 59% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 32% per annum over the next three years. That's shaping up to be materially higher than the 18% each year growth forecast for the broader market.

With this information, we can see why Quectel Wireless Solutions is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Quectel Wireless Solutions' P/E

The large bounce in Quectel Wireless Solutions' shares has lifted the company's P/E to a fairly high level. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Quectel Wireless Solutions 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Quectel Wireless Solutions with six simple checks.

You might be able to find a better investment than Quectel Wireless Solutions. 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.