Further Upside For Jiangsu Hanvo Safety Product Co., Ltd. (SZSE:300952) Shares Could Introduce Price Risks After 28% Bounce

Jiangsu Hanvo Safety Product Co., Ltd. (SZSE:300952) shareholders have had their patience rewarded with a 28% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 14% is also fairly reasonable.

Even after such a large jump in price, it's still not a stretch to say that Jiangsu Hanvo Safety Product's price-to-earnings (or "P/E") ratio of 27.8x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 30x. 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.

Jiangsu Hanvo Safety Product has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Jiangsu Hanvo Safety Product

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Is There Some Growth For Jiangsu Hanvo Safety Product?

There's an inherent assumption that a company should be matching the market for P/E ratios like Jiangsu Hanvo Safety Product's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 5.5%. This means it has also seen a slide in earnings over the longer-term as EPS is down 1.0% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 42% per annum as estimated by the dual analysts watching the company. With the market only predicted to deliver 19% per annum, the company is positioned for a stronger earnings result.

With this information, we find it interesting that Jiangsu Hanvo Safety Product is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Jiangsu Hanvo Safety Product's P/E?

Jiangsu Hanvo Safety Product appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Jiangsu Hanvo Safety Product 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.

You need to take note of risks, for example - Jiangsu Hanvo Safety Product has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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.