Xiamen Jihong Technology Co., Ltd. (SZSE:002803) Stock Rockets 26% But Many Are Still Ignoring The Company

Despite an already strong run, Xiamen Jihong Technology Co., Ltd. (SZSE:002803) shares have been powering on, with a gain of 26% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 33% over that time.

In spite of the firm bounce in price, there still wouldn't be many who think Xiamen Jihong Technology's price-to-earnings (or "P/E") ratio of 38.2x is worth a mention when the median P/E in China is similar at about 35x. 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.

Recent times haven't been advantageous for Xiamen Jihong Technology as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

Check out our latest analysis for Xiamen Jihong Technology

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Is There Some Growth For Xiamen Jihong Technology?

Xiamen Jihong Technology's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a frustrating 48% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 59% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 202% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 39% growth forecast for the broader market.

In light of this, it's curious that Xiamen Jihong Technology's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Xiamen Jihong Technology's P/E?

Its shares have lifted substantially and now Xiamen Jihong Technology's P/E is also back up to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Xiamen Jihong Technology's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Xiamen Jihong Technology is showing 3 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Xiamen Jihong Technology, 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.