Hainan Jinpan Smart Technology Co., Ltd.'s (SHSE:688676) Share Price Is Still Matching Investor Opinion Despite 27% Slump

Hainan Jinpan Smart Technology Co., Ltd. (SHSE:688676) shares have had a horrible month, losing 27% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 14%.

In spite of the heavy fall in price, Hainan Jinpan Smart Technology may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 35.3x, since almost half of all companies in China have P/E ratios under 28x and even P/E's lower than 17x 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.

Hainan Jinpan Smart Technology certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See 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?

In order to justify its P/E ratio, Hainan Jinpan Smart Technology would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 56%. The latest three year period has also seen an excellent 79% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 38% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 25% each year, which is noticeably less attractive.

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.

What We Can Learn From Hainan Jinpan Smart Technology's P/E?

Hainan Jinpan Smart Technology's P/E hasn't come down all the way after its stock plunged. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Hainan Jinpan Smart Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Hainan Jinpan Smart Technology (2 are a bit concerning) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.

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