Market Still Lacking Some Conviction On Zhejiang Jiemei Electronic And Technology Co., Ltd. (SZSE:002859)

With a median price-to-earnings (or "P/E") ratio of close to 35x in China, you could be forgiven for feeling indifferent about Zhejiang Jiemei Electronic And Technology Co., Ltd.'s (SZSE:002859) P/E ratio of 34.7x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Zhejiang Jiemei Electronic And Technology has been doing quite well of late. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Zhejiang Jiemei Electronic And Technology

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

How Is Zhejiang Jiemei Electronic And Technology's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Zhejiang Jiemei Electronic And Technology's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 35% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 39% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 48% over the next year. Meanwhile, the rest of the market is forecast to only expand by 40%, which is noticeably less attractive.

With this information, we find it interesting that Zhejiang Jiemei Electronic And Technology is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

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.

We've established that Zhejiang Jiemei Electronic And Technology currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Zhejiang Jiemei Electronic And Technology (at least 2 which don't sit too well with us), and understanding these should be part of your investment process.

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.