Earnings Tell The Story For Sichuan Jiuzhou Electronic Co., Ltd. (SZSE:000801) As Its Stock Soars 50%

Sichuan Jiuzhou Electronic Co., Ltd. (SZSE:000801) shareholders have had their patience rewarded with a 50% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.

Following the firm bounce in price, Sichuan Jiuzhou Electronic's price-to-earnings (or "P/E") ratio of 69.1x 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 33x and even P/E's below 19x 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.

Sichuan Jiuzhou Electronic has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Sichuan Jiuzhou Electronic

Keen to find out how analysts think Sichuan Jiuzhou Electronic's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Sichuan Jiuzhou Electronic's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 4.4% decrease to the company's bottom line. Even so, admirably EPS has lifted 37% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 99% as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 37%, which is noticeably less attractive.

With this information, we can see why Sichuan Jiuzhou Electronic 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 Sichuan Jiuzhou Electronic's P/E

Sichuan Jiuzhou Electronic's P/E is flying high just like its stock has during the last month. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Sichuan Jiuzhou Electronic maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Sichuan Jiuzhou Electronic that you should be aware of.

You might be able to find a better investment than Sichuan Jiuzhou Electronic. 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).

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.