Shanghai Shentong Metro Co.,Ltd. (SHSE:600834) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. 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.
After such a large jump in price, Shanghai Shentong MetroLtd’s price-to-earnings (or “P/E”) ratio of 61.4x 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 27x and even P/E’s below 16x 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.
For instance, Shanghai Shentong MetroLtd’s receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other…
