Guangzhou Jet Bio-Filtration Co., Ltd. (SHSE:688026) Stock Rockets 46% As Investors Are Less Pessimistic Than Expected

Guangzhou Jet Bio-Filtration Co., Ltd. (SHSE:688026) shares have continued their recent momentum with a 46% gain in the last month alone. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, there still wouldn't be many who think Guangzhou Jet Bio-Filtration's price-to-earnings (or "P/E") ratio of 36.2x is worth a mention when the median P/E in China is similar at about 34x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Guangzhou Jet Bio-Filtration has been doing quite well of late. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Guangzhou Jet Bio-Filtration

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Guangzhou Jet Bio-Filtration.

How Is Guangzhou Jet Bio-Filtration's Growth Trending?

In order to justify its P/E ratio, Guangzhou Jet Bio-Filtration would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 228%. Still, incredibly EPS has fallen 38% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 15% each year over the next three years. That's shaping up to be materially lower than the 19% each year growth forecast for the broader market.

With this information, we find it interesting that Guangzhou Jet Bio-Filtration is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Guangzhou Jet Bio-Filtration's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of Guangzhou Jet Bio-Filtration's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Guangzhou Jet Bio-Filtration that you need to be mindful of.

If these risks are making you reconsider your opinion on Guangzhou Jet Bio-Filtration, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.