Further Upside For Jafron Biomedical Co.,Ltd. (SZSE:300529) Shares Could Introduce Price Risks After 34% Bounce

Jafron Biomedical Co.,Ltd. (SZSE:300529) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 45% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Jafron BiomedicalLtd's price-to-earnings (or "P/E") ratio of 35.2x is worth a mention when the median P/E in China is similar at about 34x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Jafron BiomedicalLtd 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 not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Jafron BiomedicalLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jafron BiomedicalLtd.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Jafron BiomedicalLtd's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 68%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 30% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 25% each year over the next three years. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader market.

With this information, we find it interesting that Jafron BiomedicalLtd is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Jafron BiomedicalLtd's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Jafron BiomedicalLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Jafron BiomedicalLtd you should be aware 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.