Xinyi Solar Holdings Limited's (HKG:968) P/E Is Still On The Mark Following 29% Share Price Bounce

Xinyi Solar Holdings Limited (HKG:968) shares have continued their recent momentum with a 29% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

After such a large jump in price, given around half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 9x, you may consider Xinyi Solar Holdings as a stock to potentially avoid with its 13.4x 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.

With earnings growth that's superior to most other companies of late, Xinyi Solar Holdings has been doing relatively well. 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 Xinyi Solar Holdings

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

Is There Enough Growth For Xinyi Solar Holdings?

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

Retrospectively, the last year delivered a decent 9.5% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen an unpleasant 15% overall drop in EPS. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 22% per year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 14% per year growth forecast for the broader market.

In light of this, it's understandable that Xinyi Solar 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.

The Bottom Line On Xinyi Solar Holdings' P/E

Xinyi Solar Holdings' P/E is getting right up there since its shares have risen strongly. 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.

As we suspected, our examination of Xinyi Solar Holdings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Having said that, be aware Xinyi Solar Holdings is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Xinyi Solar Holdings, 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. 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.