Beijing Yuanliu Hongyuan Electronic Technology Co., Ltd.'s (SHSE:603267) Popularity With Investors Is Clear

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 27x, you may consider Beijing Yuanliu Hongyuan Electronic Technology Co., Ltd. (SHSE:603267) as a stock to potentially avoid with its 38.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Beijing Yuanliu Hongyuan Electronic Technology hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for Beijing Yuanliu Hongyuan Electronic Technology

Want the full picture on analyst estimates for the company? Then our free report on Beijing Yuanliu Hongyuan Electronic Technology will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, Beijing Yuanliu Hongyuan Electronic Technology would need to produce impressive growth in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 62%. This means it has also seen a slide in earnings over the longer-term as EPS is down 61% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 36% per annum over the next three years. That's shaping up to be materially higher than the 24% each year growth forecast for the broader market.

In light of this, it's understandable that Beijing Yuanliu Hongyuan Electronic 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.

The Bottom Line On Beijing Yuanliu Hongyuan Electronic Technology'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.

As we suspected, our examination of Beijing Yuanliu Hongyuan Electronic Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

It is also worth noting that we have found 2 warning signs for Beijing Yuanliu Hongyuan Electronic Technology that you need to take into consideration.

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.

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