Wus Printed Circuit (Kunshan) Co., Ltd.'s (SZSE:002463) Shares Climb 36% But Its Business Is Yet to Catch Up

The Wus Printed Circuit (Kunshan) Co., Ltd. (SZSE:002463) share price has done very well over the last month, posting an excellent gain of 36%. The annual gain comes to 105% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Wus Printed Circuit (Kunshan) may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 43.5x, since almost half of all companies in China have P/E ratios under 29x and even P/E's lower than 18x 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 Wus Printed Circuit (Kunshan) as its earnings have risen in spite of the market's earnings going into reverse. 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.

Check out our latest analysis for Wus Printed Circuit (Kunshan)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Wus Printed Circuit (Kunshan).

Does Growth Match The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Wus Printed Circuit (Kunshan)'s to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 37% during the coming year according to the analysts following the company. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we find it concerning that Wus Printed Circuit (Kunshan) is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Wus Printed Circuit (Kunshan)'s P/E

Wus Printed Circuit (Kunshan) shares have received a push in the right direction, but its P/E is elevated too. 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 much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Wus Printed Circuit (Kunshan) with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Wus Printed Circuit (Kunshan). 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.