Yangzhou Yangjie Electronic Technology Co., Ltd.'s (SZSE:300373) Shares Climb 56% But Its Business Is Yet to Catch Up

Yangzhou Yangjie Electronic Technology Co., Ltd. (SZSE:300373) shares have had a really impressive month, gaining 56% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 55%.

Although its price has surged higher, it's still not a stretch to say that Yangzhou Yangjie Electronic Technology's price-to-earnings (or "P/E") ratio of 31.4x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 34x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Yangzhou Yangjie Electronic Technology certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Yangzhou Yangjie Electronic Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Yangzhou Yangjie Electronic Technology.

How Is Yangzhou Yangjie Electronic Technology's Growth Trending?

In order to justify its P/E ratio, Yangzhou Yangjie Electronic Technology would need to produce growth that's similar to the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow EPS by an impressive 49% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 19% per annum growth forecast for the broader market.

In light of this, it's curious that Yangzhou Yangjie Electronic Technology's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Key Takeaway

Yangzhou Yangjie Electronic Technology's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of Yangzhou Yangjie Electronic Technology's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Yangzhou Yangjie Electronic Technology is showing 3 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.