Despite an already strong run, Yantai North Andre Juice Co.,Ltd. (HKG:2218) shares have been powering on, with a gain of 55% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 87% in the last year.
Following the firm bounce in price, Yantai North Andre JuiceLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 17.3x, since almost half of all companies in Hong Kong have P/E ratios under 10x and even P/E's lower than 6x 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.
Our free stock report includes 3 warning signs investors should be aware of before investing in Yantai North Andre JuiceLtd. Read for free now.Earnings have risen firmly for Yantai North Andre JuiceLtd recently, which is pleasing to see. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Check out our latest analysis for Yantai North Andre JuiceLtd
What Are Growth Metrics Telling Us About The High P/E?
The only time you'd be truly comfortable seeing a P/E as steep as Yantai North Andre JuiceLtd's is when the company's growth is on track to outshine the market decidedly.
Retrospectively, the last year delivered an exceptional 23% gain to the company's bottom line. The latest three year period has also seen an excellent 72% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.
It's interesting to note that the rest of the market is similarly expected to grow by 18% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.
In light of this, it's curious that Yantai North Andre JuiceLtd's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as a continuation of recent earnings trends would weigh down the share price eventually.
The Bottom Line On Yantai North Andre JuiceLtd's P/E
Shares in Yantai North Andre JuiceLtd have built up some good momentum lately, which has really inflated its 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 Yantai North Andre JuiceLtd currently trades on a higher than expected P/E since its recent three-year growth is only in line with the wider market forecast. When we see average earnings with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.
There are also other vital risk factors to consider and we've discovered 3 warning signs for Yantai North Andre JuiceLtd (2 are a bit unpleasant!) that you should be aware of before investing here.
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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