Market Participants Recognise Shanghai Yct Electronics Group Co.,Ltd's (SZSE:301099) Earnings Pushing Shares 27% Higher

The Shanghai Yct Electronics Group Co.,Ltd (SZSE:301099) share price has done very well over the last month, posting an excellent gain of 27%. The last 30 days bring the annual gain to a very sharp 79%.

Following the firm bounce in price, Shanghai Yct Electronics GroupLtd may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 49.8x, since almost half of all companies in China have P/E ratios under 39x and even P/E's lower than 22x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Shanghai Yct Electronics GroupLtd 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Shanghai Yct Electronics GroupLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Yct Electronics GroupLtd.

How Is Shanghai Yct Electronics GroupLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Shanghai Yct Electronics GroupLtd's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 65%. Still, incredibly EPS has fallen 5.4% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 61% as estimated by the lone analyst watching the company. With the market only predicted to deliver 37%, the company is positioned for a stronger earnings result.

With this information, we can see why Shanghai Yct Electronics GroupLtd 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 Final Word

Shanghai Yct Electronics GroupLtd shares have received a push in the right direction, but its P/E is elevated too. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Shanghai Yct Electronics GroupLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Shanghai Yct Electronics GroupLtd (of which 1 is concerning!) you should know about.

Of course, you might also be able to find a better stock than Shanghai Yct Electronics GroupLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.