Why We're Not Concerned About BOE Technology Group Company Limited's (SZSE:000725) Share Price

With a price-to-earnings (or "P/E") ratio of 42.4x BOE Technology Group Company Limited (SZSE:000725) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 34x and even P/E's lower than 20x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been pleasing for BOE Technology Group 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for BOE Technology Group

Want the full picture on analyst estimates for the company? Then our free report on BOE Technology Group will help you uncover what's on the horizon.

How Is BOE Technology Group's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 250% gain to the company's bottom line. Still, incredibly EPS has fallen 80% in total from three years ago, which is quite disappointing. 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 48% per year during the coming three years according to the analysts following the company. With the market only predicted to deliver 19% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why BOE Technology Group 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 Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of BOE Technology Group'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.

Before you settle on your opinion, we've discovered 2 warning signs for BOE Technology Group that you should be aware of.

You might be able to find a better investment than BOE Technology Group. 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.