Anhui Anfu Battery Technology Co.,Ltd (SHSE:603031) shares have had a horrible month, losing 27% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 21% in that time.

Even after such a large drop in price, Anhui Anfu Battery TechnologyLtd's price-to-earnings (or "P/E") ratio of 39.2x might still make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 30x and even P/E's below 18x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Anhui Anfu Battery TechnologyLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

What Are Growth Metrics Telling Us About The High P/E?

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

Retrospectively, the last year delivered an exceptional 34% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 44% as estimated by the one analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

In light of this, it's understandable that Anhui Anfu Battery TechnologyLtd's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Anhui Anfu Battery TechnologyLtd's P/E

Despite the recent share price weakness, Anhui Anfu Battery TechnologyLtd's P/E remains higher than most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Anhui Anfu Battery 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. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Anhui Anfu Battery TechnologyLtd you should know about.

Of course, you might also be able to find a better stock than Anhui Anfu Battery TechnologyLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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