Chaozhou Three-Circle (Group) Co.,Ltd.'s (SZSE:300408) Shares May Have Run Too Fast Too Soon

There wouldn't be many who think Chaozhou Three-Circle (Group) Co.,Ltd.'s (SZSE:300408) price-to-earnings (or "P/E") ratio of 37.2x is worth a mention when the median P/E in China is similar at about 38x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Chaozhou Three-Circle (Group)Ltd has been doing quite well of late. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction 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 growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 43% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 9.5% drop in EPS in aggregate. 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 24% as estimated by the ten analysts watching the company. With the market predicted to deliver 37% growth , the company is positioned for a weaker earnings result.

In light of this, it's curious that Chaozhou Three-Circle (Group)Ltd's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Chaozhou Three-Circle (Group)Ltd's 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.

Our examination of Chaozhou Three-Circle (Group)Ltd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 1 warning sign for Chaozhou Three-Circle (Group)Ltd that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.