Suzhou Veichi Electric Co., Ltd. (SHSE:688698) shares have had a horrible month, losing 28% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 11%.
In spite of the heavy fall in price, there still wouldn't be many who think Suzhou Veichi Electric's price-to-earnings (or "P/E") ratio of 30.4x is worth a mention when the median P/E in China is similar at about 29x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Recent times have been pleasing for Suzhou Veichi Electric as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
View our latest analysis for Suzhou Veichi Electric
Does Growth Match The P/E?
In order to justify its P/E ratio, Suzhou Veichi Electric would need to produce growth that's similar to the market.
Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. The latest three year period has also seen an excellent 45% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 37% during the coming year according to the six analysts following the company. With the market predicted to deliver 42% growth , the company is positioned for a weaker earnings result.
In light of this, it's curious that Suzhou Veichi Electric's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.
The Bottom Line On Suzhou Veichi Electric's P/E
Suzhou Veichi Electric's plummeting stock price has brought its P/E right back to the rest of the market. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Suzhou Veichi Electric currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.
Plus, you should also learn about these 4 warning signs we've spotted with Suzhou Veichi Electric (including 1 which is potentially serious).
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.
