Market Participants Recognise Raytron Technology Co.,Ltd.'s (SHSE:688002) Earnings Pushing Shares 25% Higher

Those holding Raytron Technology Co.,Ltd. (SHSE:688002) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 9.0% over the last year.

Following the firm bounce in price, Raytron TechnologyLtd may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 36.1x, since almost half of all companies in China have P/E ratios under 30x and even P/E's lower than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Raytron TechnologyLtd has been doing quite well of late. 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.

Check out our latest analysis for Raytron TechnologyLtd

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

How Is Raytron TechnologyLtd's Growth Trending?

In order to justify its P/E ratio, Raytron TechnologyLtd would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 59% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 15% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 51% over the next year. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

With this information, we can see why Raytron TechnologyLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Raytron TechnologyLtd's P/E?

The large bounce in Raytron TechnologyLtd's shares has lifted the company's P/E to a fairly high level. 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.

We've established that Raytron TechnologyLtd 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Raytron TechnologyLtd with six simple checks will allow you to discover any risks that could be an issue.

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.