After Leaping 28% Long Young Electronic (Kunshan) Co., Ltd. (SZSE:301389) Shares Are Not Flying Under The Radar

Those holding Long Young Electronic (Kunshan) Co., Ltd. (SZSE:301389) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% over that time.

Since its price has surged higher, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 31x, you may consider Long Young Electronic (Kunshan) as a stock to potentially avoid with its 41.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Long Young Electronic (Kunshan) has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Long Young Electronic (Kunshan)

Keen to find out how analysts think Long Young Electronic (Kunshan)'s future stacks up against the industry? In that case, our free report is a great place to start.

How Is Long Young Electronic (Kunshan)'s Growth Trending?

In order to justify its P/E ratio, Long Young Electronic (Kunshan) would need to produce impressive growth in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 55%. This means it has also seen a slide in earnings over the longer-term as EPS is down 60% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 191% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

With this information, we can see why Long Young Electronic (Kunshan) 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 Key Takeaway

Long Young Electronic (Kunshan) shares have received a push in the right direction, but its P/E is elevated too. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Long Young Electronic (Kunshan) 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 3 warning signs for Long Young Electronic (Kunshan) (2 are concerning!) that you need to take into consideration.

You might be able to find a better investment than Long Young Electronic (Kunshan). If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.