Unfortunately for some shareholders, the Chongqing Mas Sci.&Tech.Co.,Ltd. (SZSE:300275) share price has dived 27% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 15% share price drop.
Even after such a large drop in price, Chongqing Mas Sci.&Tech.Co.Ltd may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 53.1x, since almost half of all companies in China have P/E ratios under 29x and even P/E's lower than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Recent times have been pleasing for Chongqing Mas Sci.&Tech.Co.Ltd as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for Chongqing Mas Sci.&Tech.Co.Ltd
How Is Chongqing Mas Sci.&Tech.Co.Ltd's Growth Trending?
In order to justify its P/E ratio, Chongqing Mas Sci.&Tech.Co.Ltd would need to produce outstanding growth well in excess of the market.
Retrospectively, the last year delivered an exceptional 23% gain to the company's bottom line. Pleasingly, EPS has also lifted 56% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Turning to the outlook, the next year should generate growth of 102% as estimated by the three analysts watching the company. With the market only predicted to deliver 42%, the company is positioned for a stronger earnings result.
In light of this, it's understandable that Chongqing Mas Sci.&Tech.Co.Ltd'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 Bottom Line On Chongqing Mas Sci.&Tech.Co.Ltd's P/E
A significant share price dive has done very little to deflate Chongqing Mas Sci.&Tech.Co.Ltd's very lofty P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that Chongqing Mas Sci.&Tech.Co.Ltd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Chongqing Mas Sci.&Tech.Co.Ltd with six simple checks on some of these key factors.
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.