Western Regions Tourism Development Co.,Ltd's (SZSE:300859) 46% Jump Shows Its Popularity With Investors

Despite an already strong run, Western Regions Tourism Development Co.,Ltd (SZSE:300859) shares have been powering on, with a gain of 46% in the last thirty days. The last 30 days bring the annual gain to a very sharp 85%.

After such a large jump in price, Western Regions Tourism DevelopmentLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 76x, since almost half of all companies in China have P/E ratios under 37x and even P/E's lower than 21x are not unusual. 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.

With earnings that are retreating more than the market's of late, Western Regions Tourism DevelopmentLtd has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Western Regions Tourism DevelopmentLtd

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

What Are Growth Metrics Telling Us About The High P/E?

Western Regions Tourism DevelopmentLtd's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 15%. Still, the latest three year period has seen an excellent 147% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 73% during the coming year according to the one analyst following the company. With the market only predicted to deliver 40%, the company is positioned for a stronger earnings result.

With this information, we can see why Western Regions Tourism DevelopmentLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Western Regions Tourism DevelopmentLtd's P/E is flying high just like its stock has during the last month. 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.

We've established that Western Regions Tourism DevelopmentLtd 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Western Regions Tourism DevelopmentLtd is showing 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

You might be able to find a better investment than Western Regions Tourism DevelopmentLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.