Why We're Not Concerned About Jiangxi Huangshanghuang Group Food Co., Ltd.'s (SZSE:002695) Share Price

With a price-to-earnings (or "P/E") ratio of 58.1x Jiangxi Huangshanghuang Group Food Co., Ltd. (SZSE:002695) may be sending very bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 30x and even P/E's lower than 18x are not unusual. 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.

Recent times have been advantageous for Jiangxi Huangshanghuang Group Food as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Jiangxi Huangshanghuang Group Food

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangxi Huangshanghuang Group Food.

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

Jiangxi Huangshanghuang Group Food'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.

Taking a look back first, we see that the company grew earnings per share by an impressive 101% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 78% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 123% as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 38% growth forecast for the broader market.

With this information, we can see why Jiangxi Huangshanghuang Group Food 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.

What We Can Learn From Jiangxi Huangshanghuang Group Food's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Jiangxi Huangshanghuang Group Food maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

It is also worth noting that we have found 3 warning signs for Jiangxi Huangshanghuang Group Food (1 shouldn't be ignored!) that you need to take into consideration.

If you're unsure about the strength of Jiangxi Huangshanghuang Group Food'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.