Earnings Tell The Story For Changbai Mountain Tourism Co., Ltd. (SHSE:603099) As Its Stock Soars 35%

Changbai Mountain Tourism Co., Ltd. (SHSE:603099) shares have continued their recent momentum with a 35% gain in the last month alone. The annual gain comes to 149% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Changbai Mountain Tourism's price-to-earnings (or "P/E") ratio of 59.1x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 32x and even P/E's below 19x are quite common. 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.

Changbai Mountain Tourism certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Changbai Mountain Tourism

Keen to find out how analysts think Changbai Mountain Tourism's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Changbai Mountain Tourism's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 405%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 24% each year over the next three years. That's shaping up to be materially higher than the 18% per year growth forecast for the broader market.

With this information, we can see why Changbai Mountain Tourism is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Changbai Mountain Tourism's P/E is flying high just like its stock has during the last month. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Changbai Mountain Tourism 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. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Changbai Mountain Tourism with six simple checks.

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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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.