Investors Still Waiting For A Pull Back In Yadea Group Holdings Ltd. (HKG:1585)

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 12x, you may consider Yadea Group Holdings Ltd. (HKG:1585) as a stock to potentially avoid with its 18.1x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Yadea Group Holdings could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Yadea Group Holdings

Keen to find out how analysts think Yadea Group Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Yadea Group Holdings' Growth Trending?

Yadea Group Holdings' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 25%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 6.5% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should generate growth of 28% each year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 15% per annum growth forecast for the broader market.

In light of this, it's understandable that Yadea Group Holdings' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Yadea Group Holdings' P/E?

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 Yadea Group Holdings 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.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Yadea Group Holdings with six simple checks.

Of course, you might also be able to find a better stock than Yadea Group Holdings. 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.