The Fujian Yongfu Power Engineering Co.,Ltd. (SZSE:300712) share price has fared very poorly over the last month, falling by a substantial 27%. For any long-term shareholders, the last month ends a year to forget by locking in a 62% share price decline.

Even after such a large drop in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may still consider Fujian Yongfu Power EngineeringLtd as a stock to avoid entirely with its 62x 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 earnings that are retreating more than the market's of late, Fujian Yongfu Power EngineeringLtd has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Fujian Yongfu Power EngineeringLtd

Is There Enough Growth For Fujian Yongfu Power EngineeringLtd?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Fujian Yongfu Power EngineeringLtd's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 26%. As a result, earnings from three years ago have also fallen 3.4% overall. 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 254% during the coming year according to the only analyst following the company. That's shaping up to be materially higher than the 42% growth forecast for the broader market.

In light of this, it's understandable that Fujian Yongfu Power EngineeringLtd's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Fujian Yongfu Power EngineeringLtd's P/E

Fujian Yongfu Power EngineeringLtd's shares may have retreated, but its P/E is still flying high. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Fujian Yongfu Power EngineeringLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Fujian Yongfu Power EngineeringLtd is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

If these risks are making you reconsider your opinion on Fujian Yongfu Power EngineeringLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.