Optimistic Investors Push Jiangsu JieJie Microelectronics Co., Ltd. (SZSE:300623) Shares Up 34% But Growth Is Lacking

Despite an already strong run, Jiangsu JieJie Microelectronics Co., Ltd. (SZSE:300623) shares have been powering on, with a gain of 34% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 46% in the last year.

Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Jiangsu JieJie Microelectronics as a stock to avoid entirely with its 54.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Jiangsu JieJie Microelectronics has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Jiangsu JieJie Microelectronics

Keen to find out how analysts think Jiangsu JieJie Microelectronics' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Jiangsu JieJie Microelectronics?

Jiangsu JieJie Microelectronics' 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.

If we review the last year of earnings growth, the company posted a terrific increase of 40%. Still, incredibly EPS has fallen 18% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 1.3% per annum during the coming three years according to the one analyst following the company. That's shaping up to be materially lower than the 19% per annum growth forecast for the broader market.

With this information, we find it concerning that Jiangsu JieJie Microelectronics is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

The strong share price surge has got Jiangsu JieJie Microelectronics' P/E rushing to great heights as well. 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.

We've established that Jiangsu JieJie Microelectronics currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with Jiangsu JieJie Microelectronics (including 1 which can't be ignored).

If you're unsure about the strength of Jiangsu JieJie Microelectronics' 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.