Despite an already strong run, Shanghai Huili Building Materials Co., Ltd. (SHSE:900939) shares have been powering on, with a gain of 28% in the last thirty days. But the gains over the last month weren’t enough to make shareholders whole, as the share price is still down 7.7% in the last twelve months.
After such a large jump in price, given close to half the companies in China have price-to-earnings ratios (or “P/E’s”) below 27x, you may consider Shanghai Huili Building Materials as a stock to avoid entirely with its 70.5x P/E ratio. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
As an illustration, earnings have deteriorated at Shanghai Huili Building Materials over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near…
