Wuxi Unicomp Technology Co., Ltd. (SHSE:688531) Stocks Shoot Up 26% But Its P/E Still Looks Reasonable

The Wuxi Unicomp Technology Co., Ltd. (SHSE:688531) share price has done very well over the last month, posting an excellent gain of 26%. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Following the firm bounce in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 39x, you may consider Wuxi Unicomp Technology as a stock to potentially avoid with its 50.3x 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.

Wuxi Unicomp Technology certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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.

See our latest analysis for Wuxi Unicomp Technology

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

How Is Wuxi Unicomp Technology's Growth Trending?

In order to justify its P/E ratio, Wuxi Unicomp Technology would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 17%. The strong recent performance means it was also able to grow EPS by 101% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 84% during the coming year according to the sole analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 37%, which is noticeably less attractive.

With this information, we can see why Wuxi Unicomp Technology is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Wuxi Unicomp Technology's P/E is getting right up there since its shares have risen strongly. 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 Wuxi Unicomp 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Wuxi Unicomp Technology that you should be aware of.

Of course, you might also be able to find a better stock than Wuxi Unicomp Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.