JiangSu JiuWu Hi-Tech Co., Ltd. (SZSE:300631) Stocks Shoot Up 44% But Its P/E Still Looks Reasonable

Those holding JiangSu JiuWu Hi-Tech Co., Ltd. (SZSE:300631) shares would be relieved that the share price has rebounded 44% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

Following the firm bounce in price, JiangSu JiuWu Hi-Tech's price-to-earnings (or "P/E") ratio of 64.6x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been pleasing for JiangSu JiuWu Hi-Tech as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for JiangSu JiuWu Hi-Tech

If you'd like to see what analysts are forecasting going forward, you should check out our free report on JiangSu JiuWu Hi-Tech.

Does Growth Match The High P/E?

In order to justify its P/E ratio, JiangSu JiuWu Hi-Tech would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.6% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 53% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 346% over the next year. Meanwhile, the rest of the market is forecast to only expand by 41%, which is noticeably less attractive.

With this information, we can see why JiangSu JiuWu Hi-Tech is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On JiangSu JiuWu Hi-Tech's P/E

Shares in JiangSu JiuWu Hi-Tech have built up some good momentum lately, which has really inflated its P/E. 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.

As we suspected, our examination of JiangSu JiuWu Hi-Tech's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for JiangSu JiuWu Hi-Tech with six simple checks on some of these key factors.

If you're unsure about the strength of JiangSu JiuWu Hi-Tech'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.