After Leaping 25% Fujian Torch Electron Technology Co., Ltd. (SHSE:603678) Shares Are Not Flying Under The Radar

Despite an already strong run, Fujian Torch Electron Technology Co., Ltd. (SHSE:603678) shares have been powering on, with a gain of 25% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% 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 32x, you may consider Fujian Torch Electron Technology as a stock to potentially avoid with its 45.3x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Fujian Torch Electron Technology could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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 Fujian Torch Electron Technology

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

How Is Fujian Torch Electron Technology's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 64%. As a result, earnings from three years ago have also fallen 67% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 34% per year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 25% per year, which is noticeably less attractive.

In light of this, it's understandable that Fujian Torch Electron 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 Fujian Torch Electron Technology's P/E?

Fujian Torch Electron Technology's P/E is getting right up there since its shares have risen strongly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Fujian Torch Electron Technology'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.

You always need to take note of risks, for example - Fujian Torch Electron Technology has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Fujian Torch Electron Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.