Optimistic Investors Push Jilin Joinature Polymer Co.,Ltd. (SHSE:688716) Shares Up 43% But Growth Is Lacking

Despite an already strong run, Jilin Joinature Polymer Co.,Ltd. (SHSE:688716) shares have been powering on, with a gain of 43% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.4% in the last twelve months.

Since its price has surged higher, Jilin Joinature PolymerLtd's price-to-earnings (or "P/E") ratio of 56.9x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 36x and even P/E's below 21x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Earnings have risen at a steady rate over the last year for Jilin Joinature PolymerLtd, which is generally not a bad outcome. One possibility is that the P/E is high because investors think this good earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Jilin Joinature PolymerLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jilin Joinature PolymerLtd will help you shine a light on its historical performance.

How Is Jilin Joinature PolymerLtd's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Jilin Joinature PolymerLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.3% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 3.3% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's an unpleasant look.

With this information, we find it concerning that Jilin Joinature PolymerLtd is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Jilin Joinature PolymerLtd's P/E

The strong share price surge has got Jilin Joinature PolymerLtd's P/E rushing to great heights as well. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Jilin Joinature PolymerLtd revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 3 warning signs for Jilin Joinature PolymerLtd you should be aware of, and 1 of them doesn't sit too well with us.

If you're unsure about the strength of Jilin Joinature PolymerLtd'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.