Jiangsu Leadmicro Nano-Equipment Technology Ltd's (SHSE:688147) Share Price Matching Investor Opinion

Jiangsu Leadmicro Nano-Equipment Technology Ltd's (SHSE:688147) price-to-earnings (or "P/E") ratio of 57.5x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. 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 growth that's superior to most other companies of late, Jiangsu Leadmicro Nano-Equipment Technology has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Jiangsu Leadmicro Nano-Equipment Technology

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Does Growth Match The High P/E?

Jiangsu Leadmicro Nano-Equipment 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 an exceptional 338% gain to the company's bottom line. The latest three year period has also seen an excellent 276% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 130% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 34% growth forecast for the broader market.

With this information, we can see why Jiangsu Leadmicro Nano-Equipment 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.

The Key Takeaway

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.

As we suspected, our examination of Jiangsu Leadmicro Nano-Equipment 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Jiangsu Leadmicro Nano-Equipment Technology with six simple checks.

You might be able to find a better investment than Jiangsu Leadmicro Nano-Equipment 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.