Wuhan Raycus Fiber Laser Technologies Co.,Ltd. (SZSE:300747) Stocks Shoot Up 30% But Its P/E Still Looks Reasonable

Wuhan Raycus Fiber Laser Technologies Co.,Ltd. (SZSE:300747) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. 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 may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 65.9x, 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Recent times have been pleasing for Wuhan Raycus Fiber Laser TechnologiesLtd as its earnings have risen in spite of the market's earnings going into reverse. 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.

View our latest analysis for Wuhan Raycus Fiber Laser TechnologiesLtd

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What Are Growth Metrics Telling Us About 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.

Retrospectively, the last year delivered an exceptional 70% gain to the company's bottom line. Still, incredibly EPS has fallen 20% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 101% over the next year. Meanwhile, the rest of the market is forecast to only expand by 41%, which is noticeably less attractive.

With this information, we can see why Wuhan Raycus Fiber Laser TechnologiesLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On 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. 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.

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. 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 1 warning sign for Wuhan Raycus Fiber Laser TechnologiesLtd that you need to take into consideration.

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.