Hainan Jinpan Smart Technology Co., Ltd.'s (SHSE:688676) P/E Is Still On The Mark Following 29% Share Price Bounce

Hainan Jinpan Smart Technology Co., Ltd. (SHSE:688676) shares have continued their recent momentum with a 29% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 56%.

Since its price has surged higher, Hainan Jinpan Smart Technology may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 43.2x, since almost half of all companies in China have P/E ratios under 30x 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.

Recent times have been advantageous for Hainan Jinpan Smart Technology as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Hainan Jinpan Smart Technology

Keen to find out how analysts think Hainan Jinpan Smart Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Hainan Jinpan Smart Technology's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 56% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 88% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 37% each year over the next three years. That's shaping up to be materially higher than the 20% per year growth forecast for the broader market.

In light of this, it's understandable that Hainan Jinpan Smart Technology's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Hainan Jinpan Smart Technology shares have received a push in the right direction, but its P/E is elevated too. 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 Hainan Jinpan Smart Technology maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example - Hainan Jinpan Smart Technology has 3 warning signs (and 2 which are concerning) we think you should know about.

If you're unsure about the strength of Hainan Jinpan Smart Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.