Chaozhou Three-Circle (Group) Co.,Ltd. (SZSE:300408) Not Lagging Market On Growth Or Pricing

With a price-to-earnings (or "P/E") ratio of 34.6x Chaozhou Three-Circle (Group) Co.,Ltd. (SZSE:300408) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 29x and even P/E's lower than 18x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Chaozhou Three-Circle (Group)Ltd has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Chaozhou Three-Circle (Group)Ltd

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How Is Chaozhou Three-Circle (Group)Ltd's Growth Trending?

In order to justify its P/E ratio, Chaozhou Three-Circle (Group)Ltd would need to produce impressive growth in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 9.1%. Regardless, EPS has managed to lift by a handy 6.6% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 51% during the coming year according to the seven analysts following the company. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

With this information, we can see why Chaozhou Three-Circle (Group)Ltd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Chaozhou Three-Circle (Group)Ltd's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Chaozhou Three-Circle (Group)Ltd'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. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Chaozhou Three-Circle (Group)Ltd that you should be aware of.

If these risks are making you reconsider your opinion on Chaozhou Three-Circle (Group)Ltd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.