Jiangxi Lian Chuang Optoelectronic Science And Technology Co.,lTd.'s (SHSE:600363) Share Price Matching Investor Opinion

Jiangxi Lian Chuang Optoelectronic Science And Technology Co.,lTd.'s (SHSE:600363) price-to-earnings (or "P/E") ratio of 40x might make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 32x and even P/E's below 20x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

With earnings growth that's superior to most other companies of late, Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 15%. As a result, it also grew EPS by 10% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 87% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 38% growth forecast for the broader market.

In light of this, it's understandable that Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

We've established that Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd 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.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Jiangxi Lian Chuang Optoelectronic Science And TechnologylTd with six simple checks.

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.