Investors Still Aren't Entirely Convinced By Jiangsu Pacific Precision Forging Co., Ltd.'s (SZSE:300258) Earnings Despite 32% Price Jump

Jiangsu Pacific Precision Forging Co., Ltd. (SZSE:300258) shareholders have had their patience rewarded with a 32% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 27% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Jiangsu Pacific Precision Forging's P/E ratio of 33.7x, since the median price-to-earnings (or "P/E") ratio in China is also close to 37x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times haven't been advantageous for Jiangsu Pacific Precision Forging as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Jiangsu Pacific Precision Forging

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangsu Pacific Precision Forging.

How Is Jiangsu Pacific Precision Forging's Growth Trending?

The only time you'd be comfortable seeing a P/E like Jiangsu Pacific Precision Forging's is when the company's growth is tracking the market closely.

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 37%. The last three years don't look nice either as the company has shrunk EPS by 15% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 126% over the next year. That's shaping up to be materially higher than the 37% growth forecast for the broader market.

With this information, we find it interesting that Jiangsu Pacific Precision Forging is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Jiangsu Pacific Precision Forging's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Jiangsu Pacific Precision Forging currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for Jiangsu Pacific Precision Forging that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.