Subdued Growth No Barrier To Jiangyin Haida Rubber And Plastic Co., Ltd. (SZSE:300320) With Shares Advancing 25%

Jiangyin Haida Rubber And Plastic Co., Ltd. (SZSE:300320) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 80% in the last year.

Following the firm bounce in price, Jiangyin Haida Rubber And Plastic may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 44.8x, since almost half of all companies in China have P/E ratios under 39x and even P/E's lower than 22x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

With earnings growth that's exceedingly strong of late, Jiangyin Haida Rubber And Plastic has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Jiangyin Haida Rubber And Plastic

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jiangyin Haida Rubber And Plastic's earnings, revenue and cash flow.

Does Growth Match The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Jiangyin Haida Rubber And Plastic's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 46%. Still, incredibly EPS has fallen 12% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 37% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Jiangyin Haida Rubber And Plastic 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 Key Takeaway

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.

We've established that Jiangyin Haida Rubber And Plastic currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. 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. 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.

Having said that, be aware Jiangyin Haida Rubber And Plastic is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.