Earnings Not Telling The Story For Fiberhome Telecommunication Technologies Co., Ltd. (SHSE:600498) After Shares Rise 28%

Fiberhome Telecommunication Technologies Co., Ltd. (SHSE:600498) shares have continued their recent momentum with a 28% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 4.4% isn't as impressive.

Since its price has surged higher, Fiberhome Telecommunication Technologies may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 43.3x, since almost half of all companies in China have P/E ratios under 36x and even P/E's lower than 21x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Fiberhome Telecommunication Technologies certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Fiberhome Telecommunication Technologies

Keen to find out how analysts think Fiberhome Telecommunication Technologies' 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?

In order to justify its P/E ratio, Fiberhome Telecommunication Technologies would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 413% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 24% over the next year. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we find it concerning that Fiberhome Telecommunication Technologies is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. 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.

What We Can Learn From Fiberhome Telecommunication Technologies' P/E?

Fiberhome Telecommunication Technologies shares have received a push in the right direction, but its P/E is elevated too. 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 Fiberhome Telecommunication Technologies currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about these 2 warning signs we've spotted with Fiberhome Telecommunication Technologies.

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).

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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.