Pinning Down TD Holdings, Inc.'s (NASDAQ:GLG) P/E Is Difficult Right Now

With a price-to-earnings (or "P/E") ratio of 20.5x TD Holdings, Inc. (NASDAQ:GLG) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 13x and even P/E's lower than 7x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

We'd have to say that with no tangible growth over the last year, TD Holdings' earnings have been unimpressive. It might be that many are expecting an improvement to the uninspiring earnings performance over the coming period, 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 TD Holdings

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on TD Holdings' earnings, revenue and cash flow.

Does Growth Match The High P/E?

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

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. The longer-term trend has been no better as the company has no earnings growth to show for over the last three years either. Therefore, it's fair to say that earnings growth has definitely eluded the company recently.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.1% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that TD Holdings is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On TD Holdings' P/E

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.

Our examination of TD Holdings revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for TD Holdings (1 makes us a bit uncomfortable!) that you need to take into consideration.

If you're unsure about the strength of TD Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.