Juneyao Grand Healthy DrinksCo.,Ltd. (SHSE:605388) Looks Just Right With A 26% Price Jump

Juneyao Grand Healthy DrinksCo.,Ltd. (SHSE:605388) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

Since its price has surged higher, Juneyao Grand Healthy DrinksCo.Ltd's price-to-earnings (or "P/E") ratio of 72x 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 32x and even P/E's below 20x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Juneyao Grand Healthy DrinksCo.Ltd hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Juneyao Grand Healthy DrinksCo.Ltd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Juneyao Grand Healthy DrinksCo.Ltd.

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 Juneyao Grand Healthy DrinksCo.Ltd's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 34% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 75% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 170% over the next year. That's shaping up to be materially higher than the 38% growth forecast for the broader market.

With this information, we can see why Juneyao Grand Healthy DrinksCo.Ltd 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.

The Key Takeaway

Shares in Juneyao Grand Healthy DrinksCo.Ltd 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 Juneyao Grand Healthy DrinksCo.Ltd'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. 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 3 warning signs for Juneyao Grand Healthy DrinksCo.Ltd that you should be aware of.

Of course, you might also be able to find a better stock than Juneyao Grand Healthy DrinksCo.Ltd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.