Optimistic Investors Push Hunan TV & Broadcast Intermediary Co., Ltd. (SZSE:000917) Shares Up 26% But Growth Is Lacking

Despite an already strong run, Hunan TV & Broadcast Intermediary Co., Ltd. (SZSE:000917) shares have been powering on, with a gain of 26% in the last thirty days. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 34x, you may consider Hunan TV & Broadcast Intermediary as a stock to avoid entirely with its 69.6x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For instance, Hunan TV & Broadcast Intermediary's receding earnings in recent times would have to be some food for thought. 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 future. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for Hunan TV & Broadcast Intermediary

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 Hunan TV & Broadcast Intermediary's earnings, revenue and cash flow.

Is There Enough Growth For Hunan TV & Broadcast Intermediary?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Hunan TV & Broadcast Intermediary's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 36%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 40% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Hunan TV & Broadcast Intermediary 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. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

Shares in Hunan TV & Broadcast Intermediary have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Hunan TV & Broadcast Intermediary currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 1 warning sign for Hunan TV & Broadcast Intermediary that you should be aware of.

If you're unsure about the strength of Hunan TV & Broadcast Intermediary's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.