Investors Appear Satisfied With Anhui Ronds Science & Technology Incorporated Company's (SHSE:688768) Prospects As Shares Rocket 30%

Anhui Ronds Science & Technology Incorporated Company (SHSE:688768) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. The last month tops off a massive increase of 122% in the last year.

Following the firm bounce in price, Anhui Ronds Science & Technology's price-to-earnings (or "P/E") ratio of 47x 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 34x and even P/E's below 20x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Anhui Ronds Science & Technology as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Anhui Ronds Science & Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Anhui Ronds Science & Technology.

How Is Anhui Ronds Science & Technology's Growth Trending?

In order to justify its P/E ratio, Anhui Ronds Science & Technology would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 37% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 9.8% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 58% during the coming year according to the two analysts following the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

With this information, we can see why Anhui Ronds Science & 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 Bottom Line On Anhui Ronds Science & Technology's P/E

Anhui Ronds Science & 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 Anhui Ronds Science & 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.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Anhui Ronds Science & Technology with six simple checks.

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.

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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.