Market Participants Recognise Jiangsu Sidike New Materials Science & Technology Co., Ltd.'s (SZSE:300806) Earnings Pushing Shares 34% Higher

Jiangsu Sidike New Materials Science & Technology Co., Ltd. (SZSE:300806) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 51% share price decline over the last year.

After such a large jump in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Jiangsu Sidike New Materials Science & Technology as a stock to avoid entirely with its 53.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Jiangsu Sidike New Materials Science & Technology has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Jiangsu Sidike New Materials Science & Technology

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

In order to justify its P/E ratio, Jiangsu Sidike New Materials Science & Technology would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 67% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 50% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 172% during the coming year according to the one analyst following the company. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

With this information, we can see why Jiangsu Sidike New Materials Science & 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.

The Final Word

The strong share price surge has got Jiangsu Sidike New Materials Science & Technology's P/E rushing to great heights as well. 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 Jiangsu Sidike New Materials Science & Technology maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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 4 warning signs for Jiangsu Sidike New Materials Science & Technology (of which 2 shouldn't be ignored!) you should know about.

You might be able to find a better investment than Jiangsu Sidike New Materials Science & Technology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.