CITIC Offshore Helicopter Co., Ltd.'s (SZSE:000099) 36% Share Price Surge Not Quite Adding Up

The CITIC Offshore Helicopter Co., Ltd. (SZSE:000099) share price has done very well over the last month, posting an excellent gain of 36%. The annual gain comes to 152% following the latest surge, making investors sit up and take notice.

After such a large jump in price, CITIC Offshore Helicopter may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 61.9x, since almost half of all companies in China have P/E ratios under 31x and even P/E's lower than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been pleasing for CITIC Offshore Helicopter as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for CITIC Offshore Helicopter

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How Is CITIC Offshore Helicopter's Growth Trending?

CITIC Offshore Helicopter's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 29% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 23% during the coming year according to the only analyst following the company. With the market predicted to deliver 37% growth , the company is positioned for a weaker earnings result.

In light of this, it's alarming that CITIC Offshore Helicopter's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From CITIC Offshore Helicopter's P/E?

CITIC Offshore Helicopter'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 CITIC Offshore Helicopter currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for CITIC Offshore Helicopter that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.