Optimistic Investors Push China Leadshine Technology Co., Ltd. (SZSE:002979) Shares Up 33% But Growth Is Lacking

China Leadshine Technology Co., Ltd. (SZSE:002979) shareholders have had their patience rewarded with a 33% share price jump in the last month. The annual gain comes to 169% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, China Leadshine Technology may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 63.3x, since almost half of all companies in China have P/E ratios under 36x and even P/E's lower than 20x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

China Leadshine 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. 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.

See our latest analysis for China Leadshine Technology

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

How Is China Leadshine Technology's Growth Trending?

China Leadshine Technology's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 91% gain to the company's bottom line. Still, incredibly EPS has fallen 9.9% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

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

In light of this, it's curious that China Leadshine Technology's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Shares in China Leadshine Technology have built up some good momentum lately, which has really inflated its P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that China Leadshine Technology currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 1 warning sign for China Leadshine Technology that you should be aware of.

You might be able to find a better investment than China Leadshine Technology. 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.