Not Many Are Piling Into Hainan Jinpan Smart Technology Co., Ltd. (SHSE:688676) Stock Yet As It Plummets 25%

Unfortunately for some shareholders, the Hainan Jinpan Smart Technology Co., Ltd. (SHSE:688676) share price has dived 25% in the last thirty days, prolonging recent pain. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Hainan Jinpan Smart Technology's P/E ratio of 26.3x, since the median price-to-earnings (or "P/E") ratio in China is also close to 27x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Hainan Jinpan Smart Technology certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Hainan Jinpan Smart Technology

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Is There Some Growth For Hainan Jinpan Smart Technology?

Hainan Jinpan Smart Technology's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 36%. Pleasingly, EPS has also lifted 96% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 34% per year as estimated by the eight analysts watching the company. With the market only predicted to deliver 20% each year, the company is positioned for a stronger earnings result.

In light of this, it's curious that Hainan Jinpan Smart Technology's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

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

With its share price falling into a hole, the P/E for Hainan Jinpan Smart Technology looks quite average now. 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 Hainan Jinpan Smart Technology 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.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Hainan Jinpan Smart Technology (of which 1 doesn't sit too well with us!) you should know about.

If these risks are making you reconsider your opinion on Hainan Jinpan Smart Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.