Sichuan Tianyi Comheart Telecom Co., Ltd.'s (SZSE:300504) P/E Is Still On The Mark Following 40% Share Price Bounce

Sichuan Tianyi Comheart Telecom Co., Ltd. (SZSE:300504) shares have had a really impressive month, gaining 40% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.7% in the last twelve months.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 27x, you may consider Sichuan Tianyi Comheart Telecom as a stock to avoid entirely with its 72.9x 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.

Sichuan Tianyi Comheart Telecom hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Sichuan Tianyi Comheart Telecom

Keen to find out how analysts think Sichuan Tianyi Comheart Telecom's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Sichuan Tianyi Comheart Telecom?

In order to justify its P/E ratio, Sichuan Tianyi Comheart Telecom would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 69%. The last three years don't look nice either as the company has shrunk EPS by 52% 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 54% each year during the coming three years according to the lone analyst following the company. That's shaping up to be materially higher than the 24% per year growth forecast for the broader market.

With this information, we can see why Sichuan Tianyi Comheart Telecom is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Sichuan Tianyi Comheart Telecom's P/E is flying high just like its stock has during the last month. 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.

We've established that Sichuan Tianyi Comheart Telecom 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. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Sichuan Tianyi Comheart Telecom (of which 1 is concerning!) you should know about.

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.