Jenkem Technology Co., Ltd. (SHSE:688356) Not Flying Under The Radar

With a price-to-earnings (or "P/E") ratio of 70.1x Jenkem Technology Co., Ltd. (SHSE:688356) may be sending very bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 36x and even P/E's lower than 20x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings that are retreating more than the market's of late, Jenkem Technology has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Jenkem Technology

Want the full picture on analyst estimates for the company? Then our free report on Jenkem Technology will help you uncover what's on the horizon.

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

Jenkem Technology's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 61% 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 72% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 143% as estimated by the two analysts watching the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

With this information, we can see why Jenkem Technology is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Jenkem Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Jenkem Technology 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.