Improved Earnings Required Before China Jushi Co., Ltd. (SHSE:600176) Stock's 29% Jump Looks Justified

Despite an already strong run, China Jushi Co., Ltd. (SHSE:600176) shares have been powering on, with a gain of 29% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.

Even after such a large jump in price, China Jushi may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 16.5x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 53x 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 limited.

China Jushi hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for China Jushi

Keen to find out how analysts think China Jushi's future stacks up against the industry? In that case, our free report is a great place to start.

How Is China Jushi's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as China Jushi's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 54% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 26% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to climb by 9.7% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 21% per annum, which is noticeably more attractive.

In light of this, it's understandable that China Jushi's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From China Jushi's P/E?

Despite China Jushi's shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of China Jushi's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - China Jushi has 3 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than China Jushi. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.