Fujian Torch Electron Technology Co., Ltd.'s (SHSE:603678) Price In Tune With Earnings

Fujian Torch Electron Technology Co., Ltd.'s (SHSE:603678) price-to-earnings (or "P/E") ratio of 41.2x 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 27x and even P/E's below 16x are quite common. 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.

See 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.

Retrospectively, the last year delivered a frustrating 64% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 67% 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 three analysts covering the company suggest earnings should grow by 34% per annum over the next three years. With the market only predicted to deliver 24% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Fujian Torch Electron Technology's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

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. 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 1 warning sign for Fujian Torch Electron Technology that you should be aware of.

You might be able to find a better investment than Fujian Torch Electron Technology. 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.