Market Participants Recognise China Bester Group Telecom Co., Ltd.'s (SHSE:603220) Earnings Pushing Shares 38% Higher

China Bester Group Telecom Co., Ltd. (SHSE:603220) shareholders would be excited to see that the share price has had a great month, posting a 38% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 11% over that time.

Following the firm bounce in price, China Bester Group Telecom's price-to-earnings (or "P/E") ratio of 56.7x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 32x and even P/E's below 19x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

China Bester Group Telecom 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for China Bester Group Telecom

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Bester Group Telecom.

How Is China Bester Group Telecom's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as China Bester Group Telecom's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 46%. The latest three year period has also seen an excellent 65% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 42% as estimated by the one analyst watching 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 China Bester Group Telecom'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

Shares in China Bester Group Telecom have built up some good momentum lately, which has really inflated its P/E. 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 China Bester Group Telecom maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with China Bester Group Telecom.

You might be able to find a better investment than China Bester Group Telecom. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.