Shenzhen Genvict Technologies Co., Ltd. (SZSE:002869) shares have continued their recent momentum with a 33% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 7.1% isn't as attractive.

Since its price has surged higher, Shenzhen Genvict Technologies may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 70.1x, since almost half of all companies in China have P/E ratios under 30x 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.

With earnings growth that's exceedingly strong of late, Shenzhen Genvict Technologies has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors' willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Shenzhen Genvict Technologies' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 185% gain to the company's bottom line. Still, incredibly EPS has fallen 88% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's an unpleasant look.

With this information, we find it concerning that Shenzhen Genvict Technologies is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Shenzhen Genvict Technologies' P/E?

The strong share price surge has got Shenzhen Genvict Technologies' P/E rushing to great heights as well. 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 Shenzhen Genvict Technologies currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about these 3 warning signs we've spotted with Shenzhen Genvict Technologies (including 2 which are a bit concerning).

If you're unsure about the strength of Shenzhen Genvict Technologies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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