Jason Furniture (Hangzhou) Co.,Ltd. (SHSE:603816) Stock Catapults 25% Though Its Price And Business Still Lag The Market

Jason Furniture (Hangzhou) Co.,Ltd. (SHSE:603816) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Jason Furniture (Hangzhou)Ltd as a highly attractive investment with its 12.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Jason Furniture (Hangzhou)Ltd has been doing quite well of late. 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.

See our latest analysis for Jason Furniture (Hangzhou)Ltd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jason Furniture (Hangzhou)Ltd.

Does Growth Match The Low P/E?

Jason Furniture (Hangzhou)Ltd's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.6% last year. Pleasingly, EPS has also lifted 89% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 7.9% per year as estimated by the analysts watching the company. With the market predicted to deliver 19% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Jason Furniture (Hangzhou)Ltd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Even after such a strong price move, Jason Furniture (Hangzhou)Ltd's P/E still trails the rest of the market significantly. 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 Jason Furniture (Hangzhou)Ltd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Jason Furniture (Hangzhou)Ltd (of which 1 makes us a bit uncomfortable!) you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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

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.