China Yuchai International Limited (NYSE:CYD) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. This latest share price bounce rounds out a remarkable 341% gain over the last twelve months.

Following the firm bounce in price, China Yuchai International's price-to-earnings (or "P/E") ratio of 27.9x might make it look like a sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 19x and even P/E's below 11x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for China Yuchai International as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on China Yuchai International will help you uncover what's on the horizon.

How Is China Yuchai International's Growth Trending?

China Yuchai International's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 40% gain to the company's bottom line. Pleasingly, EPS has also lifted 333% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 28% per year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 12% per year, which is noticeably less attractive.

With this information, we can see why China Yuchai International 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 China Yuchai International's P/E

China Yuchai International's P/E is getting right up there since its shares have risen strongly. 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.

As we suspected, our examination of China Yuchai International's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for China Yuchai International with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.