Those holding Sichuan Jiuyuan Yinhai Software.Co.,Ltd (SZSE:002777) shares would be relieved that the share price has rebounded 32% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Following the firm bounce in price, Sichuan Jiuyuan Yinhai Software.Co.Ltd's price-to-earnings (or "P/E") ratio of 58.1x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 31x and even P/E's below 19x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Sichuan Jiuyuan Yinhai Software.Co.Ltd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

How Is Sichuan Jiuyuan Yinhai Software.Co.Ltd's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 24% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 57% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 40% growth forecast for the broader market.

With this information, we can see why Sichuan Jiuyuan Yinhai Software.Co.Ltd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Sichuan Jiuyuan Yinhai Software.Co.Ltd's P/E?

Sichuan Jiuyuan Yinhai Software.Co.Ltd's P/E is flying high just like its stock has during the last month. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Sichuan Jiuyuan Yinhai Software.Co.Ltd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Sichuan Jiuyuan Yinhai Software.Co.Ltd with six simple checks on some of these key factors.

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.