Joeone Co.,Ltd (SHSE:601566) shares have had a horrible month, losing 31% after a relatively good period beforehand. Longer-term shareholders would now have taken a real hit with the stock declining 2.8% in the last year.

Although its price has dipped substantially, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 26x, you may still consider JoeoneLtd as a stock to avoid entirely with its 40.8x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, JoeoneLtd has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors' willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

How Is JoeoneLtd's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 337% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 55% 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.

Turning to the outlook, the next year should generate growth of 169% as estimated by the three analysts watching the company. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that JoeoneLtd's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

A significant share price dive has done very little to deflate JoeoneLtd's very lofty P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that JoeoneLtd 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. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with JoeoneLtd.

If you're unsure about the strength of JoeoneLtd's 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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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.