After Leaping 37% Shenzhen Everwin Precision Technology Co., Ltd. (SZSE:300115) Shares Are Not Flying Under The Radar

The Shenzhen Everwin Precision Technology Co., Ltd. (SZSE:300115) share price has done very well over the last month, posting an excellent gain of 37%. The last month tops off a massive increase of 174% in the last year.

After such a large jump in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 36x, you may consider Shenzhen Everwin Precision Technology as a stock to potentially avoid with its 48.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Shenzhen Everwin Precision 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 Shenzhen Everwin Precision Technology

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

Does Growth Match The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Shenzhen Everwin Precision Technology's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 258%. The latest three year period has also seen an excellent 74% 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.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 29% per year over the next three years. With the market only predicted to deliver 21% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Shenzhen Everwin Precision Technology's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The large bounce in Shenzhen Everwin Precision Technology's shares has lifted the company's P/E to a fairly high level. 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.

We've established that Shenzhen Everwin Precision Technology maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Shenzhen Everwin Precision Technology that you need to take into consideration.

If you're unsure about the strength of Shenzhen Everwin Precision Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.