Jiangyin Haida Rubber And Plastic Co., Ltd.'s (SZSE:300320) 29% Price Boost Is Out Of Tune With Earnings

Despite an already strong run, Jiangyin Haida Rubber And Plastic Co., Ltd. (SZSE:300320) shares have been powering on, with a gain of 29% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 5.0% isn't as impressive.

After such a large jump in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 32x, you may consider Jiangyin Haida Rubber And Plastic as a stock to potentially avoid with its 36.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Jiangyin Haida Rubber And Plastic as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Jiangyin Haida Rubber And Plastic

Although there are no analyst estimates available for Jiangyin Haida Rubber And Plastic, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For Jiangyin Haida Rubber And Plastic?

Jiangyin Haida Rubber And Plastic's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 54% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 36% overall. 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 38% shows it's an unpleasant look.

With this information, we find it concerning that Jiangyin Haida Rubber And Plastic is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Jiangyin Haida Rubber And Plastic's P/E?

The large bounce in Jiangyin Haida Rubber And Plastic's shares has lifted the company's P/E to a fairly high level. 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 Jiangyin Haida Rubber And Plastic 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. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 1 warning sign for Jiangyin Haida Rubber And Plastic that you should be aware of.

If these risks are making you reconsider your opinion on Jiangyin Haida Rubber And Plastic, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.