Further Upside For Jinlei Technology Co., Ltd. (SZSE:300443) Shares Could Introduce Price Risks After 31% Bounce

Those holding Jinlei Technology Co., Ltd. (SZSE:300443) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 52% share price drop in the last twelve months.

In spite of the firm bounce in price, Jinlei Technology may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.4x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Jinlei 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. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Jinlei Technology

Want the full picture on analyst estimates for the company? Then our free report on Jinlei Technology will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Jinlei Technology's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 29% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 19% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 37% as estimated by the six analysts watching the company. That's shaping up to be similar to the 41% growth forecast for the broader market.

With this information, we find it odd that Jinlei Technology is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift Jinlei Technology's P/E close to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Jinlei Technology's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Jinlei Technology (including 1 which is concerning).

You might be able to find a better investment than Jinlei Technology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.