With a price-to-earnings (or "P/E") ratio of 33.8x Jinzai Food Group Co.,Ltd. (SZSE:003000) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 29x and even P/E's lower than 18x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
With earnings growth that's superior to most other companies of late, Jinzai Food GroupLtd has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Jinzai Food GroupLtd
How Is Jinzai Food GroupLtd's Growth Trending?
There's an inherent assumption that a company should outperform the market for P/E ratios like Jinzai Food GroupLtd's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 54%. The latest three year period has also seen an excellent 67% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 29% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 21% per year, which is noticeably less attractive.
With this information, we can see why Jinzai Food GroupLtd 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 Bottom Line On Jinzai Food GroupLtd's 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.
We've established that Jinzai Food GroupLtd 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.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Jinzai Food GroupLtd (1 is significant!) that you need to be mindful of.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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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.
About SZSE:003000
Jinzai Food GroupLtd
Engages in the research, development, production, and sale of snack foods in China.
Outstanding track record with high growth potential.
