Limin Group Co.,Ltd.'s (SZSE:002734) 36% Jump Shows Its Popularity With Investors

Limin Group Co.,Ltd. (SZSE:002734) shareholders have had their patience rewarded with a 36% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 78%.

After such a large jump in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 38x, you may consider Limin GroupLtd as a stock to potentially avoid with its 45x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Limin GroupLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Limin GroupLtd

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

How Is Limin GroupLtd's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 45%. However, this wasn't enough as the latest three year period has seen a very unpleasant 66% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 57% as estimated by the two analysts watching the company. With the market only predicted to deliver 36%, the company is positioned for a stronger earnings result.

With this information, we can see why Limin GroupLtd 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.

The Bottom Line On Limin GroupLtd's P/E

Limin GroupLtd shares have received a push in the right direction, but its P/E is elevated too. 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 Limin GroupLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Limin GroupLtd (of which 1 shouldn't be ignored!) you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.