Guangzhou Haige Communications Group Incorporated Company's (SZSE:002465) Share Price Matching Investor Opinion

Guangzhou Haige Communications Group Incorporated Company's (SZSE:002465) price-to-earnings (or "P/E") ratio of 55.9x 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 39x and even P/E's below 22x are quite common. 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.

With earnings that are retreating more than the market's of late, Guangzhou Haige Communications Group has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Guangzhou Haige Communications Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Guangzhou Haige Communications Group.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Guangzhou Haige Communications Group's is when the company's growth is on track to outshine the market.

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 23%. This means it has also seen a slide in earnings over the longer-term as EPS is down 24% 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 71% during the coming year according to the seven analysts following the company. That's shaping up to be materially higher than the 37% 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 Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

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. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Guangzhou Haige Communications Group that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.