Those holding Jiangsu Chuanzhiboke Education Technology Co., LTD. (SZSE:003032) shares would be relieved that the share price has rebounded 40% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.
Following the firm bounce in price, Jiangsu Chuanzhiboke Education Technology may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 44.7x, since almost half of all companies in China have P/E ratios under 31x and even P/E's lower than 19x 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 as high as it is.
With earnings that are retreating more than the market's of late, Jiangsu Chuanzhiboke Education Technology has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Is There Enough Growth For Jiangsu Chuanzhiboke Education Technology?
Jiangsu Chuanzhiboke Education Technology's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.
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 34%. Even so, admirably EPS has lifted 100% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
Turning to the outlook, the next year should generate growth of 20% as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 40% growth forecast for the broader market.
In light of this, it's alarming that Jiangsu Chuanzhiboke Education Technology's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.
What We Can Learn From Jiangsu Chuanzhiboke Education Technology's P/E?
Jiangsu Chuanzhiboke Education Technology'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.
We've established that Jiangsu Chuanzhiboke Education Technology currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
Plus, you should also learn about these 2 warning signs we've spotted with Jiangsu Chuanzhiboke Education Technology.
Of course, you might also be able to find a better stock than Jiangsu Chuanzhiboke Education Technology. 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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