Sichuan Jiuzhou Electronic Co., Ltd. (SZSE:000801) Shares Slammed 27% But Getting In Cheap Might Be Difficult Regardless

The Sichuan Jiuzhou Electronic Co., Ltd. (SZSE:000801) share price has fared very poorly over the last month, falling by a substantial 27%. Longer-term, the stock has been solid despite a difficult 30 days, gaining 22% in the last year.

In spite of the heavy fall in price, Sichuan Jiuzhou Electronic's price-to-earnings (or "P/E") ratio of 46.2x might still 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 27x and even P/E's below 16x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Sichuan Jiuzhou Electronic as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Sichuan Jiuzhou Electronic

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

How Is Sichuan Jiuzhou Electronic's Growth Trending?

Sichuan Jiuzhou Electronic's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 4.4% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 37% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 99% over the next year. Meanwhile, the rest of the market is forecast to only expand by 39%, 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. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Sichuan Jiuzhou Electronic's P/E?

Even after such a strong price drop, Sichuan Jiuzhou Electronic's P/E still exceeds the rest of the market significantly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Sichuan Jiuzhou Electronic'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. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Sichuan Jiuzhou Electronic that you should be aware of.

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.

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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.