Yadea Group Holdings Ltd.'s (HKG:1585) Popularity With Investors Is Under Threat From Overpricing

Yadea Group Holdings Ltd.'s (HKG:1585) price-to-earnings (or "P/E") ratio of 11.9x might make it look like a sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 8x and even P/E's below 4x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Yadea Group Holdings 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 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.

Is There Enough Growth For Yadea Group Holdings?

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

Retrospectively, the last year delivered an exceptional 42% gain to the company's bottom line. The latest three year period has also seen an excellent 232% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 16% per year during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the market is forecast to expand by 16% per annum, which is not materially different.

In light of this, it's curious that Yadea Group Holdings' P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Yadea Group Holdings' P/E

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.

We've established that Yadea Group Holdings currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 1 warning sign for Yadea Group Holdings that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.