Getting In Cheap On Sichuan Jiuyuan Yinhai Software.Co.,Ltd (SZSE:002777) Might Be Difficult

With a price-to-earnings (or "P/E") ratio of 33.7x Sichuan Jiuyuan Yinhai Software.Co.,Ltd (SZSE:002777) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 27x and even P/E's lower than 16x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Sichuan Jiuyuan Yinhai Software.Co.Ltd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Sichuan Jiuyuan Yinhai Software.Co.Ltd

Want the full picture on analyst estimates for the company? Then our free report on Sichuan Jiuyuan Yinhai Software.Co.Ltd will help you uncover what's on the horizon.

How Is Sichuan Jiuyuan Yinhai Software.Co.Ltd's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Sichuan Jiuyuan Yinhai Software.Co.Ltd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 9.2% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 27% per year over the next three years. With the market only predicted to deliver 24% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Sichuan Jiuyuan Yinhai Software.Co.Ltd's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Sichuan Jiuyuan Yinhai Software.Co.Ltd's P/E?

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.

As we suspected, our examination of Sichuan Jiuyuan Yinhai Software.Co.Ltd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Sichuan Jiuyuan Yinhai Software.Co.Ltd that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com