Sichuan Jiuyuan Yinhai Software.Co.,Ltd (SZSE:002777) Looks Just Right With A 28% Price Jump

Sichuan Jiuyuan Yinhai Software.Co.,Ltd (SZSE:002777) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 42% over that time.

After such a large jump in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 28x, you may consider Sichuan Jiuyuan Yinhai Software.Co.Ltd as a stock to avoid entirely with its 67.8x 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.

With earnings that are retreating more than the market's of late, Sichuan Jiuyuan Yinhai Software.Co.Ltd 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Keen to find out how analysts think Sichuan Jiuyuan Yinhai Software.Co.Ltd'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?

There's an inherent assumption that a company should far 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 48% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 56% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 44% each year during the coming three years according to the three analysts following the company. With the market only predicted to deliver 19% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Sichuan Jiuyuan Yinhai Software.Co.Ltd 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 Bottom Line On Sichuan Jiuyuan Yinhai Software.Co.Ltd's P/E

Sichuan Jiuyuan Yinhai Software.Co.Ltd'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 Sichuan Jiuyuan Yinhai Software.Co.Ltd 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.

Before you take the next step, you should know about the 3 warning signs for Sichuan Jiuyuan Yinhai Software.Co.Ltd that we have uncovered.

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.