CASTECH Inc.'s (SZSE:002222) price-to-earnings (or "P/E") ratio of 52.4x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 31x and even P/E's below 19x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
CASTECH hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.
Keen to find out how analysts think CASTECH's future stacks up against the industry? In that case, our free report is a great place to start.
How Is CASTECH's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as steep as CASTECH's is when the company's growth is on track to outshine the market decidedly.
Retrospectively, the last year delivered a frustrating 9.8% decrease to the company's bottom line. Even so, admirably EPS has lifted 30% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 51% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.
With this information, we can see why CASTECH is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Key Takeaway
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of CASTECH's 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 CASTECH is showing 1 warning sign in our investment analysis, you should know about.
You might be able to find a better investment than CASTECH. 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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CASTECH Inc. 's(SZSE:002222)市盈率(或 “市盈率”)为52.4倍,与中国市场相比,目前看上去像是强劲的抛售,中国约有一半的公司的市盈率低于31倍,甚至市盈率低于19倍也很常见。但是,市盈率可能相当高是有原因的,需要进一步调查以确定其是否合理。