Investors Appear Satisfied With Wuhan Raycus Fiber Laser Technologies Co.,Ltd.'s (SZSE:300747) Prospects As Shares Rocket 28%

Wuhan Raycus Fiber Laser Technologies Co.,Ltd. (SZSE:300747) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 26% over that time.

After such a large jump in price, Wuhan Raycus Fiber Laser TechnologiesLtd's price-to-earnings (or "P/E") ratio of 52.5x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Wuhan Raycus Fiber Laser TechnologiesLtd 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. 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.

Check out our latest analysis for Wuhan Raycus Fiber Laser TechnologiesLtd

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Does Growth Match The High P/E?

In order to justify its P/E ratio, Wuhan Raycus Fiber Laser TechnologiesLtd would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 54% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 59% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 47% per annum during the coming three years according to the six analysts following the company. That's shaping up to be materially higher than the 19% per year growth forecast for the broader market.

With this information, we can see why Wuhan Raycus Fiber Laser TechnologiesLtd 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 Wuhan Raycus Fiber Laser TechnologiesLtd's P/E?

Wuhan Raycus Fiber Laser TechnologiesLtd's P/E is flying high just like its stock has during the last month. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Wuhan Raycus Fiber Laser TechnologiesLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Wuhan Raycus Fiber Laser TechnologiesLtd you should be aware of.

If these risks are making you reconsider your opinion on Wuhan Raycus Fiber Laser TechnologiesLtd, 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.