After Leaping 33% Guangzhou Haige Communications Group Incorporated Company (SZSE:002465) Shares Are Not Flying Under The Radar

Guangzhou Haige Communications Group Incorporated Company (SZSE:002465) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.2% over the last year.

Following the firm bounce in price, Guangzhou Haige Communications Group may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 48.1x, 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. However, the P/E might be 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, Guangzhou Haige Communications Group has been very sluggish. 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. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Guangzhou Haige Communications Group

Keen to find out how analysts think Guangzhou Haige Communications Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Guangzhou Haige Communications Group's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Guangzhou Haige Communications Group's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 20%. This means it has also seen a slide in earnings over the longer-term as EPS is down 17% in total over the last three years. 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 30% per annum during the coming three years according to the nine analysts following the company. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader market.

In light of this, it's understandable that Guangzhou Haige Communications Group'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.

The Final Word

Guangzhou Haige Communications Group shares have received a push in the right direction, but its P/E is elevated too. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Guangzhou Haige Communications Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Guangzhou Haige Communications Group, and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Guangzhou Haige Communications Group. 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.