Earnings Not Telling The Story For Beijing ConST Instruments Technology Inc. (SZSE:300445) After Shares Rise 28%

The Beijing ConST Instruments Technology Inc. (SZSE:300445) share price has done very well over the last month, posting an excellent gain of 28%. Looking back a bit further, it's encouraging to see the stock is up 47% in the last year.

After such a large jump in price, Beijing ConST Instruments Technology may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 50.9x, 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. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Beijing ConST Instruments Technology has been doing quite well of late. 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Beijing ConST Instruments Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beijing ConST Instruments Technology.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Beijing ConST Instruments Technology's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 2.6% last year. The latest three year period has also seen a 12% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 38% over the next year. Meanwhile, the rest of the market is forecast to expand by 41%, which is not materially different.

In light of this, it's curious that Beijing ConST Instruments Technology's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Beijing ConST Instruments Technology's P/E

Shares in Beijing ConST Instruments Technology have built up some good momentum lately, which has really inflated its P/E. 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.

Our examination of Beijing ConST Instruments Technology's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. 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.

Having said that, be aware Beijing ConST Instruments Technology is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.