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Dawning Information Industry Co., Ltd.'s (SHSE:603019) Business Is Yet to Catch Up With Its Share Price

dawning information industry株式会社(SHSE:603019)のビジネスは、株価にまだ追いついていません。

Simply Wall St ·  07/29 19:10

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 27x, you may consider Dawning Information Industry Co., Ltd. (SHSE:603019) as a stock to potentially avoid with its 33.3x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Dawning Information Industry 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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SHSE:603019 Price to Earnings Ratio vs Industry July 29th 2024
Want the full picture on analyst estimates for the company? Then our free report on Dawning Information Industry will help you uncover what's on the horizon.

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

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

If we review the last year of earnings growth, the company posted a terrific increase of 20%. Pleasingly, EPS has also lifted 105% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 18% per annum over the next three years. That's shaping up to be materially lower than the 24% each year growth forecast for the broader market.

With this information, we find it concerning that Dawning Information Industry is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Dawning Information Industry'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.

Our examination of Dawning Information Industry's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Dawning Information Industry, and understanding should be part of your investment process.

If you're unsure about the strength of Dawning Information Industry's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

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