Shanghai Jahwa United Co., Ltd.'s (SHSE:600315) 26% Jump Shows Its Popularity With Investors

Shanghai Jahwa United Co., Ltd. (SHSE:600315) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 5.0% isn't as attractive.

After such a large jump in price, Shanghai Jahwa United may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 50.4x, since almost half of all companies in China have P/E ratios under 38x and even P/E's lower than 21x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Shanghai Jahwa United has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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How Is Shanghai Jahwa United's Growth Trending?

Shanghai Jahwa United's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 51%. As a result, earnings from three years ago have also fallen 50% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 57% over the next year. Meanwhile, the rest of the market is forecast to only expand by 37%, which is noticeably less attractive.

With this information, we can see why Shanghai Jahwa United 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.

The Final Word

Shanghai Jahwa United's P/E is getting right up there since its shares have risen strongly. 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.

We've established that Shanghai Jahwa United 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. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Shanghai Jahwa United.

If you're unsure about the strength of Shanghai Jahwa United'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.