Wus Printed Circuit (Kunshan) Co., Ltd. (SZSE:002463) Investors Are Less Pessimistic Than Expected

With a median price-to-earnings (or "P/E") ratio of close to 34x in China, you could be forgiven for feeling indifferent about Wus Printed Circuit (Kunshan) Co., Ltd.'s (SZSE:002463) P/E ratio of 30.8x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Wus Printed Circuit (Kunshan) has been doing quite well of late. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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How Is Wus Printed Circuit (Kunshan)'s Growth Trending?

The only time you'd be comfortable seeing a P/E like Wus Printed Circuit (Kunshan)'s is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 72% last year. The latest three year period has also seen an excellent 101% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 30% as estimated by the analysts watching the company. That's shaping up to be materially lower than the 38% growth forecast for the broader market.

With this information, we find it interesting that Wus Printed Circuit (Kunshan) is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Wus Printed Circuit (Kunshan) currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about this 1 warning sign we've spotted with Wus Printed Circuit (Kunshan).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.