When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 34x, you may consider Qingdao Topscomm Communication INC. (SHSE:603421) as a stock to avoid entirely with its 58.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
For example, consider that Qingdao Topscomm Communication's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for Qingdao Topscomm Communication
Although there are no analyst estimates available for Qingdao Topscomm Communication, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Does Growth Match The High P/E?
There's an inherent assumption that a company should far outperform the market for P/E ratios like Qingdao Topscomm Communication's to be considered reasonable.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 62%. As a result, earnings from three years ago have also fallen 19% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 43% shows it's an unpleasant look.
With this information, we find it concerning that Qingdao Topscomm Communication is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate 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 Qingdao Topscomm Communication's 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.
We've established that Qingdao Topscomm Communication currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
There are also other vital risk factors to consider and we've discovered 3 warning signs for Qingdao Topscomm Communication (1 is significant!) that you should be aware of before investing here.
You might be able to find a better investment than Qingdao Topscomm Communication. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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当中国将近一半的公司的市盈率(或 “市盈率”)低于34倍时,你可以考虑青岛Topscomm Communication INC.(上海证券交易所股票代码:603421)作为一只市盈率为58.9倍的股票完全可以避免。但是,仅按面值计算市盈率是不明智的,因为可以解释为什么市盈率如此之高。