Despite an already strong run, Zhejiang Sunriver Culture Tourism Co.,Ltd. (SHSE:600576) shares have been powering on, with a gain of 32% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.2% over the last year.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 36x, you may consider Zhejiang Sunriver Culture TourismLtd as a stock to avoid entirely with its 59.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

As an illustration, earnings have deteriorated at Zhejiang Sunriver Culture TourismLtd over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Zhejiang Sunriver Culture TourismLtd's Growth Trending?

Zhejiang Sunriver Culture TourismLtd'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.

Retrospectively, the last year delivered a frustrating 8.5% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 157% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

It's interesting to note that the rest of the market is similarly expected to grow by 41% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's curious that Zhejiang Sunriver Culture TourismLtd's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent earnings trends would weigh down the share price eventually.

The Bottom Line On Zhejiang Sunriver Culture TourismLtd's P/E

The strong share price surge has got Zhejiang Sunriver Culture TourismLtd's P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Zhejiang Sunriver Culture TourismLtd currently trades on a higher than expected P/E since its recent three-year growth is only in line with the wider market forecast. When we see average earnings with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 1 warning sign for Zhejiang Sunriver Culture TourismLtd 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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