It's great to see China Overseas Property Holdings (HKG:2669) shareholders have their patience rewarded with a 32% share price pop in the last month. That's tops off a massive gain of 111% in the last year.

All else being equal, a sharp share price increase should make a stock less attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.

View our latest analysis for China Overseas Property Holdings

How Does China Overseas Property Holdings's P/E Ratio Compare To Its Peers?

We can tell from its P/E ratio of 48.19 that there is some investor optimism about China Overseas Property Holdings. As you can see below, China Overseas Property Holdings has a much higher P/E than the average company (6.4) in the real estate industry.

Its relatively high P/E ratio indicates that China Overseas Property Holdings shareholders think it will perform better than other companies in its industry classification. Clearly the market expects growth, but it isn't guaranteed. So investors should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.

It's great to see that China Overseas Property Holdings grew EPS by 17% in the last year. And its annual EPS growth rate over 5 years is 38%. This could arguably justify a relatively high P/E ratio.

Remember: P/E Ratios Don't Consider The Balance Sheet

Don't forget that the P/E ratio considers market capitalization. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.