Earnings Not Telling The Story For Beijing CTJ Information Technology Co., Ltd. (SZSE:301153)

With a price-to-earnings (or "P/E") ratio of 42.7x Beijing CTJ Information Technology Co., Ltd. (SZSE:301153) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 30x and even P/E's lower than 18x 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.

With earnings growth that's superior to most other companies of late, Beijing CTJ Information Technology has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Beijing CTJ Information Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beijing CTJ Information Technology.

How Is Beijing CTJ Information Technology's Growth Trending?

In order to justify its P/E ratio, Beijing CTJ Information Technology would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a decent 3.8% gain to the company's bottom line. The latest three year period has also seen an excellent 80% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 25% during the coming year according to the four analysts following the company. With the market predicted to deliver 38% growth , the company is positioned for a weaker earnings result.

In light of this, it's alarming that Beijing CTJ Information Technology's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Beijing CTJ Information Technology's 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 Beijing CTJ Information Technology currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Beijing CTJ Information Technology with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than Beijing CTJ Information Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.