Shanghai BOCHU Electronic Technology Corporation Limited.'s (SHSE:688188) 25% Cheaper Price Remains In Tune With Earnings

To the annoyance of some shareholders, Shanghai BOCHU Electronic Technology Corporation Limited. (SHSE:688188) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Longer-term shareholders would now have taken a real hit with the stock declining 8.7% in the last year.

Although its price has dipped substantially, Shanghai BOCHU Electronic Technology may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 36.1x, since almost half of all companies in China have P/E ratios under 27x and even P/E's lower than 16x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Shanghai BOCHU Electronic Technology certainly has been doing a good job lately as it's been growing earnings more 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 Shanghai BOCHU Electronic Technology

Keen to find out how analysts think Shanghai BOCHU Electronic 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 Shanghai BOCHU Electronic Technology?

Shanghai BOCHU Electronic Technology's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 56% gain to the company's bottom line. The latest three year period has also seen an excellent 72% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 27% per annum over the next three years. That's shaping up to be materially higher than the 24% per annum growth forecast for the broader market.

With this information, we can see why Shanghai BOCHU Electronic Technology 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 Key Takeaway

There's still some solid strength behind Shanghai BOCHU Electronic Technology's P/E, if not its share price lately. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Shanghai BOCHU 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Shanghai BOCHU Electronic Technology that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com