WuHan Yangtze Communication Industry GroupCo.,Ltd's (SHSE:600345) Shares Climb 35% But Its Business Is Yet to Catch Up

Despite an already strong run, WuHan Yangtze Communication Industry GroupCo.,Ltd (SHSE:600345) shares have been powering on, with a gain of 35% in the last thirty days. The last 30 days bring the annual gain to a very sharp 42%.

After such a large jump in price, WuHan Yangtze Communication Industry GroupCo.Ltd's price-to-earnings (or "P/E") ratio of 51.7x might make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 37x and even P/E's below 21x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

As an illustration, earnings have deteriorated at WuHan Yangtze Communication Industry GroupCo.Ltd over the last year, which is not ideal at all. 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 WuHan Yangtze Communication Industry GroupCo.Ltd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on WuHan Yangtze Communication Industry GroupCo.Ltd will help you shine a light on its historical performance.

How Is WuHan Yangtze Communication Industry GroupCo.Ltd's Growth Trending?

WuHan Yangtze Communication Industry GroupCo.Ltd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 14%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 21% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that WuHan Yangtze Communication Industry GroupCo.Ltd 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 Bottom Line On WuHan Yangtze Communication Industry GroupCo.Ltd's P/E

WuHan Yangtze Communication Industry GroupCo.Ltd's P/E is getting right up there since its shares have risen strongly. 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.

Our examination of WuHan Yangtze Communication Industry GroupCo.Ltd revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for WuHan Yangtze Communication Industry GroupCo.Ltd you should be aware of, and 1 of them is significant.

You might be able to find a better investment than WuHan Yangtze Communication Industry GroupCo.Ltd. 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.