Market Participants Recognise DongGuan YuTong Optical Technology Co.,Ltd.'s (SZSE:300790) Earnings Pushing Shares 33% Higher

DongGuan YuTong Optical Technology Co.,Ltd. (SZSE:300790) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Looking further back, the 13% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, DongGuan YuTong Optical TechnologyLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 60x, since almost half of all companies in China have P/E ratios under 31x and even P/E's lower than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, DongGuan YuTong Optical TechnologyLtd has been doing quite well of late. 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.

See our latest analysis for DongGuan YuTong Optical TechnologyLtd

Keen to find out how analysts think DongGuan YuTong Optical TechnologyLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is DongGuan YuTong Optical TechnologyLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as DongGuan YuTong Optical TechnologyLtd's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. Still, lamentably EPS has fallen 62% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 31% each year during the coming three years according to the two 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 DongGuan YuTong Optical TechnologyLtd 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.

The Bottom Line On DongGuan YuTong Optical TechnologyLtd's P/E

Shares in DongGuan YuTong Optical TechnologyLtd have built up some good momentum lately, which has really inflated its P/E. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that DongGuan YuTong Optical TechnologyLtd 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 need to take note of risks, for example - DongGuan YuTong Optical TechnologyLtd has 3 warning signs (and 1 which is potentially serious) we think you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.