Why Investors Shouldn't Be Surprised By Jiangsu Leadmicro Nano-Equipment Technology Ltd's (SHSE:688147) P/E

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 36x, you may consider Jiangsu Leadmicro Nano-Equipment Technology Ltd (SHSE:688147) as a stock to potentially avoid with its 50.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times have been pleasing for Jiangsu Leadmicro Nano-Equipment Technology as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Jiangsu Leadmicro Nano-Equipment Technology

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Is There Enough Growth For Jiangsu Leadmicro Nano-Equipment Technology?

In order to justify its P/E ratio, Jiangsu Leadmicro Nano-Equipment Technology would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 25% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 429% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 176% over the next year. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

With this information, we can see why Jiangsu Leadmicro Nano-Equipment Technology is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Jiangsu Leadmicro Nano-Equipment Technology's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the 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. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Jiangsu Leadmicro Nano-Equipment Technology has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Jiangsu Leadmicro Nano-Equipment Technology'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.