JCET Group Co., Ltd.'s (SHSE:600584) price-to-earnings (or "P/E") ratio of 39.7x 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 33x and even P/E's below 20x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
Recent times haven't been advantageous for JCET Group 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.
View our latest analysis for JCET Group
Does Growth Match The High P/E?
The only time you'd be truly comfortable seeing a P/E as high as JCET Group's is when the company's growth is on track to outshine the market.
Retrospectively, the last year delivered a frustrating 28% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 34% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 29% per year over the next three years. 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 JCET Group'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.
What We Can Learn From JCET Group's P/E?
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.
As we suspected, our examination of JCET Group'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.
You always need to take note of risks, for example - JCET Group has 1 warning sign we think you should be aware of.
If you're unsure about the strength of JCET Group'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.
About SHSE:600584
JCET Group
Provides integrated-circuit manufacturing and technology services worldwide.
Flawless balance sheet and undervalued.
