Guangzhou Haige Communications Group Incorporated Company (SZSE:002465) shares have had a horrible month, losing 25% after a relatively good period beforehand. The last month has meant the stock is now only up 8.9% during the last year.

In spite of the heavy fall in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 27x, you may still consider Guangzhou Haige Communications Group as a stock to potentially avoid with its 37.9x 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 as high as it is.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Guangzhou Haige Communications Group has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Guangzhou Haige Communications Group

Does Growth Match The High P/E?

Guangzhou Haige Communications Group's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Likewise, not much has changed from three years ago as earnings have been stuck during that whole time. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Looking ahead now, EPS is anticipated to climb by 31% during the coming year according to the six analysts following the company. That's shaping up to be materially lower than the 42% growth forecast for the broader market.

With this information, we find it concerning that Guangzhou Haige Communications Group is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Guangzhou Haige Communications Group's P/E

Guangzhou Haige Communications Group's P/E hasn't come down all the way after its stock plunged. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Guangzhou Haige Communications Group currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Having said that, be aware Guangzhou Haige Communications Group is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Guangzhou Haige Communications Group, 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.