When close to half the companies in China have price-to-earnings ratios (or “P/E’s”) below 35x, you may consider Shenzhen FRD Science & Technology Co., Ltd. (SZSE:300602) as a stock to avoid entirely with its 75.9x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it’s justified.
Shenzhen FRD Science & Technology has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
View our latest analysis for Shenzhen FRD Science & Technology
If you’d like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen FRD Science & Technology.
How Is Shenzhen FRD Science & Technology’s Growth Trending?
The only time you’d be truly comfortable seeing a P/E as steep as Shenzhen FRD Science & Technology’s is when the company’s growth is on track to outshine the market decidedly.
If we review the last year of earnings, dishearteningly the company’s profits fell to the tune of 9.1%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 5.9% overall rise in EPS. Although it’s been a bumpy ride, it’s still fair to say the earnings growth recently has been mostly respectable for the company.
Looking ahead now, EPS is anticipated to climb by 91% during the coming year according to the three analysts following the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.
In light of this, it’s understandable that Shenzhen FRD Science & Technology’s P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Final Word
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 Shenzhen FRD Science & Technology’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. Unless these conditions change, they will continue to provide strong support to the share price.
A lot of potential risks can sit within a company’s balance sheet. Take a look at our free balance sheet analysis for Shenzhen FRD Science & Technology with six simple checks on some of these key factors.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
