The Price Is Right For Global New Material International Holdings Limited (HKG:6616)

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 12x, you may consider Global New Material International Holdings Limited (HKG:6616) as a stock to avoid entirely with its 48.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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Global New Material International Holdings could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Global New Material International Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Global New Material International Holdings.

Is There Enough Growth For Global New Material International Holdings?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Global New Material International Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 3.8% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 7.8% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 36% per annum as estimated by the lone analyst watching the company. With the market only predicted to deliver 14% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Global New Material International Holdings' 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.

What We Can Learn From Global New Material International Holdings' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Global New Material International Holdings' 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Global New Material International Holdings (of which 1 shouldn't be ignored!) you should know about.

Of course, you might also be able to find a better stock than Global New Material International Holdings. 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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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.