Earnings Not Telling The Story For Singatron Electronic (China) Co., Ltd. (SZSE:301329) After Shares Rise 32%

The Singatron Electronic (China) Co., Ltd. (SZSE:301329) share price has done very well over the last month, posting an excellent gain of 32%. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Following the firm bounce in price, Singatron Electronic (China) may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 55.8x, since almost half of all companies in China have P/E ratios under 31x and even P/E's lower than 19x 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.

As an illustration, earnings have deteriorated at Singatron Electronic (China) over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Singatron Electronic (China)

Although there are no analyst estimates available for Singatron Electronic (China), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Singatron Electronic (China)'s Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Singatron Electronic (China)'s is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 32% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 42% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 38% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Singatron Electronic (China) is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Singatron Electronic (China)'s P/E?

The strong share price surge has got Singatron Electronic (China)'s P/E rushing to great heights as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Singatron Electronic (China) revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with Singatron Electronic (China) (including 1 which is a bit concerning).

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.