TianJin 712 Communication & Broadcasting Co., Ltd.'s (SHSE:603712) P/E Is Still On The Mark Following 35% Share Price Bounce

TianJin 712 Communication & Broadcasting Co., Ltd. (SHSE:603712) shares have had a really impressive month, gaining 35% 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 22% over that time.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 32x, you may consider TianJin 712 Communication & Broadcasting as a stock to avoid entirely with its 49.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

TianJin 712 Communication & Broadcasting has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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How Is TianJin 712 Communication & Broadcasting's Growth Trending?

In order to justify its P/E ratio, TianJin 712 Communication & Broadcasting would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 61% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 49% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 45% per annum during the coming three years according to the four analysts following the company. That's shaping up to be materially higher than the 18% per year growth forecast for the broader market.

In light of this, it's understandable that TianJin 712 Communication & Broadcasting'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 TianJin 712 Communication & Broadcasting's P/E?

TianJin 712 Communication & Broadcasting'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 TianJin 712 Communication & Broadcasting 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 settle on your opinion, we've discovered 2 warning signs for TianJin 712 Communication & Broadcasting that you should be aware of.

If you're unsure about the strength of TianJin 712 Communication & Broadcasting's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.