The Shanghai DOBE Cultural & Creative Industry Development (Group)Co. LTD. (SZSE:300947) share price has done very well over the last month, posting an excellent gain of 59%. Unfortunately, despite the strong performance over the last month, the full year gain of 9.5% isn't as attractive.

Following the firm bounce in price, Shanghai DOBE Cultural & Creative Industry Development (Group)Co may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 58.3x, since almost half of all companies in China have P/E ratios under 32x and even P/E's lower than 20x 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.

Shanghai DOBE Cultural & Creative Industry Development (Group)Co certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

What Are Growth Metrics Telling Us About The High P/E?

Shanghai DOBE Cultural & Creative Industry Development (Group)Co'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.

If we review the last year of earnings growth, the company posted a terrific increase of 339%. Still, incredibly EPS has fallen 63% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 38% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that Shanghai DOBE Cultural & Creative Industry Development (Group)Co's P/E sits above the majority of other companies. 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 Shanghai DOBE Cultural & Creative Industry Development (Group)Co's P/E?

Shares in Shanghai DOBE Cultural & Creative Industry Development (Group)Co have built up some good momentum lately, which has really inflated its 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 Shanghai DOBE Cultural & Creative Industry Development (Group)Co currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 3 warning signs for Shanghai DOBE Cultural & Creative Industry Development (Group)Co you should be aware of, and 2 of them shouldn't be ignored.

If you're unsure about the strength of Shanghai DOBE Cultural & Creative Industry Development (Group)Co'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.