With Jiangsu Yoke Technology Co., Ltd. (SZSE:002409) It Looks Like You'll Get What You Pay For

With a price-to-earnings (or "P/E") ratio of 47.9x Jiangsu Yoke Technology Co., Ltd. (SZSE:002409) may be sending very bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 28x and even P/E's lower than 17x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been advantageous for Jiangsu Yoke Technology as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Jiangsu Yoke Technology

Want the full picture on analyst estimates for the company? Then our free report on Jiangsu Yoke Technology will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Jiangsu Yoke Technology's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. Pleasingly, EPS has also lifted 53% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 33% per annum as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 24% per annum growth forecast for the broader market.

With this information, we can see why Jiangsu Yoke Technology is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Jiangsu Yoke Technology's P/E?

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.

As we suspected, our examination of Jiangsu Yoke Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Jiangsu Yoke Technology that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.

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