Optimistic Investors Push Nantong JiangTian Chemical Co., Ltd. (SZSE:300927) Shares Up 28% But Growth Is Lacking

Nantong JiangTian Chemical Co., Ltd. (SZSE:300927) shareholders have had their patience rewarded with a 28% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 6.1% isn't as impressive.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 28x, you may consider Nantong JiangTian Chemical as a stock to avoid entirely with its 46.1x 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.

As an illustration, earnings have deteriorated at Nantong JiangTian Chemical over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for Nantong JiangTian Chemical

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 Nantong JiangTian Chemical's earnings, revenue and cash flow.

How Is Nantong JiangTian Chemical's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Nantong JiangTian Chemical's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 14% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 28% in total over the last three years. 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 36% shows it's an unpleasant look.

In light of this, it's alarming that Nantong JiangTian Chemical's P/E sits above the majority of other companies. 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.

What We Can Learn From Nantong JiangTian Chemical's P/E?

The strong share price surge has got Nantong JiangTian Chemical's P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Nantong JiangTian Chemical 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. 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. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Nantong JiangTian Chemical (2 make us uncomfortable) you should be aware of.

If you're unsure about the strength of Nantong JiangTian Chemical's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.