When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 34x, you may consider Shenzhen Jieshun Science and Technology Industry Co.,Ltd. (SZSE:002609) as a stock to avoid entirely with its 76.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Recent times haven't been advantageous for Shenzhen Jieshun Science and Technology IndustryLtd as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.
Check out our latest analysis for Shenzhen Jieshun Science and Technology IndustryLtd
How Is Shenzhen Jieshun Science and Technology IndustryLtd's Growth Trending?
In order to justify its P/E ratio, Shenzhen Jieshun Science and Technology IndustryLtd would need to produce outstanding growth well in excess of the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 13%. As a result, earnings from three years ago have also fallen 35% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Looking ahead now, EPS is anticipated to climb by 220% during the coming year according to the dual analysts following the company. With the market only predicted to deliver 43%, the company is positioned for a stronger earnings result.
In light of this, it's understandable that Shenzhen Jieshun Science and Technology IndustryLtd's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On Shenzhen Jieshun Science and Technology IndustryLtd's P/E
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that Shenzhen Jieshun Science and Technology IndustryLtd 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.
You should always think about risks. Case in point, we've spotted 2 warning signs for Shenzhen Jieshun Science and Technology IndustryLtd you should be aware of.
Of course, you might also be able to find a better stock than Shenzhen Jieshun Science and Technology IndustryLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.