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Jinzai Food Group Co.,Ltd.'s (SZSE:003000) Business Is Trailing The Market But Its Shares Aren't

Simply Wall St ·  08/09 10:55

With a price-to-earnings (or "P/E") ratio of 46.7x Jinzai Food Group Co.,Ltd. (SZSE:003000) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 34x and even P/E's lower than 20x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's lofty.

While the market has experienced earnings growth lately, Jinzai Food GroupLtd's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for Jinzai Food GroupLtd

peSZSE:003000 Price Based on Past Earnings August 9th 2022 Want the full picture on analyst estimates for the company? Then our free report on Jinzai Food GroupLtd will help you uncover what's on the horizon.

How Is Jinzai Food GroupLtd's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Jinzai Food GroupLtd's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. As a result, earnings from three years ago have also fallen 35% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 27% each year as estimated by the two analysts watching the company. That's shaping up to be similar to the 28% per annum growth forecast for the broader market.

In light of this, it's curious that Jinzai Food GroupLtd's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Jinzai Food GroupLtd's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Jinzai Food GroupLtd currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Jinzai Food GroupLtd has 2 warning signs we think you should be aware of.

You might be able to find a better investment than Jinzai Food GroupLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

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