Optimistic Investors Push CITIC Offshore Helicopter Co., Ltd. (SZSE:000099) Shares Up 85% But Growth Is Lacking

Despite an already strong run, CITIC Offshore Helicopter Co., Ltd. (SZSE:000099) shares have been powering on, with a gain of 85% in the last thirty days. The annual gain comes to 196% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider CITIC Offshore Helicopter as a stock to avoid entirely with its 71x 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.

With earnings growth that's superior to most other companies of late, CITIC Offshore Helicopter has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. 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

If you'd like to see what analysts are forecasting going forward, you should check out our free report on CITIC Offshore Helicopter.

Is There Enough Growth For CITIC Offshore Helicopter?

In order to justify its P/E ratio, CITIC Offshore Helicopter would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 24% gain to the company's bottom line. Still, incredibly EPS has fallen 14% in total from three years ago, which is quite disappointing. 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 16% during the coming year according to the only analyst following the company. With the market predicted to deliver 34% 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. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

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. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for CITIC Offshore Helicopter that you should be aware of.

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.