Beijing AriTime Intelligent Control Co., Ltd.'s (SHSE:600560) 28% Share Price Surge Not Quite Adding Up

Despite an already strong run, Beijing AriTime Intelligent Control Co., Ltd. (SHSE:600560) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 29%.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 37x, you may consider Beijing AriTime Intelligent Control as a stock to avoid entirely with its 79.6x 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.

Beijing AriTime Intelligent Control has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Beijing AriTime Intelligent Control

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Beijing AriTime Intelligent Control's earnings, revenue and cash flow.

How Is Beijing AriTime Intelligent Control's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Beijing AriTime Intelligent Control's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. As a result, it also grew EPS by 25% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 38% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Beijing AriTime Intelligent Control is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From Beijing AriTime Intelligent Control's P/E?

Beijing AriTime Intelligent Control's P/E is flying high just like its stock has during the last month. 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 Beijing AriTime Intelligent Control currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Beijing AriTime Intelligent Control with six simple checks.

Of course, you might also be able to find a better stock than Beijing AriTime Intelligent Control. 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.