Beijing Jetsen Technology Co., Ltd (SZSE:300182) Stocks Shoot Up 38% But Its P/E Still Looks Reasonable

Beijing Jetsen Technology Co., Ltd (SZSE:300182) shareholders have had their patience rewarded with a 38% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 5.6% isn't as impressive.

Since its price has surged higher, Beijing Jetsen Technology may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 41.9x, since almost half of all companies in China have P/E ratios under 29x and even P/E's lower than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times haven't been advantageous for Beijing Jetsen Technology as its earnings have been falling quicker 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.

See our latest analysis for Beijing Jetsen Technology

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Does Growth Match The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Beijing Jetsen Technology's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 27%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 24% each year as estimated by the one analyst watching the company. With the market only predicted to deliver 19% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Beijing Jetsen Technology's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Beijing Jetsen Technology's P/E is getting right up there since its shares have risen strongly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Beijing Jetsen Technology maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Beijing Jetsen Technology has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Beijing Jetsen 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.