Sichuan Tianyi Comheart Telecom Co., Ltd. (SZSE:300504) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Following the firm bounce in price, Sichuan Tianyi Comheart Telecom may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 66.6x, since almost half of all companies in China have P/E ratios under 26x and even P/E's lower than 16x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Sichuan Tianyi Comheart Telecom 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Growth For Sichuan Tianyi Comheart Telecom?

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

Retrospectively, the last year delivered a frustrating 69% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 52% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 54% each year as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 23% per year growth forecast for the broader market.

With this information, we can see why Sichuan Tianyi Comheart Telecom 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.

The Bottom Line On Sichuan Tianyi Comheart Telecom's P/E

The strong share price surge has got Sichuan Tianyi Comheart Telecom's P/E rushing to great heights as well. 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.

We've established that Sichuan Tianyi Comheart Telecom 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. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Sichuan Tianyi Comheart Telecom (2 are a bit unpleasant!) that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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