Why Investors Shouldn't Be Surprised By Jiangsu Jujie Microfiber Technology Group Co., Ltd.'s (SZSE:300819) 77% Share Price Surge

Jiangsu Jujie Microfiber Technology Group Co., Ltd. (SZSE:300819) shares have continued their recent momentum with a 77% gain in the last month alone. The last month tops off a massive increase of 103% in the last year.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 37x, you may consider Jiangsu Jujie Microfiber Technology Group as a stock to avoid entirely with its 68x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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While the market has experienced earnings growth lately, Jiangsu Jujie Microfiber Technology Group's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Jiangsu Jujie Microfiber Technology Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangsu Jujie Microfiber Technology Group.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Jiangsu Jujie Microfiber Technology Group's is when the company's growth is on track to outshine the market decidedly.

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 12%. Still, the latest three year period has seen an excellent 160% overall rise in EPS, in spite of its unsatisfying short-term performance. 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.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 45% over the next year. That's shaping up to be materially higher than the 36% growth forecast for the broader market.

In light of this, it's understandable that Jiangsu Jujie Microfiber Technology Group's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Jiangsu Jujie Microfiber Technology Group's P/E

Shares in Jiangsu Jujie Microfiber Technology Group have built up some good momentum lately, which has really inflated its P/E. 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.

As we suspected, our examination of Jiangsu Jujie Microfiber Technology Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Jiangsu Jujie Microfiber Technology Group (at least 1 which can't be ignored), and understanding them should be part of your investment process.

If you're unsure about the strength of Jiangsu Jujie Microfiber Technology Group'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.