The Price Is Right For Central China New Life Limited (HKG:9983)

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 11x, you may consider Central China New Life Limited (HKG:9983) as a stock to potentially avoid with its 15.6x 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.

Recent times have been advantageous for Central China New Life as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Central China New Life

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Central China New Life.

Is There Enough Growth For Central China New Life?

In order to justify its P/E ratio, Central China New Life would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 44% gain to the company's bottom line. Pleasingly, EPS has also lifted 417% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 35% per year over the next three years. With the market only predicted to deliver 20% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Central China New Life's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Central China New Life's P/E?

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 Central China New Life 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 2 warning signs for Central China New Life that you need to take into consideration.

If these risks are making you reconsider your opinion on Central China New Life, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. 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.
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