Zhengzhou Jiean Hi-Tech Co.,Ltd.'s (SZSE:300845) Popularity With Investors Under Threat As Stock Sinks 25%

Zhengzhou Jiean Hi-Tech Co.,Ltd. (SZSE:300845) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 14% share price drop.

Even after such a large drop in price, there still wouldn't be many who think Zhengzhou Jiean Hi-TechLtd's price-to-earnings (or "P/E") ratio of 30.7x is worth a mention when the median P/E in China is similar at about 33x. 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.

With earnings growth that's exceedingly strong of late, Zhengzhou Jiean Hi-TechLtd has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Zhengzhou Jiean Hi-TechLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Zhengzhou Jiean Hi-TechLtd will help you shine a light on its historical performance.

How Is Zhengzhou Jiean Hi-TechLtd's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Zhengzhou Jiean Hi-TechLtd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 42% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's noticeably less attractive on an annualised basis.

With this information, we find it interesting that Zhengzhou Jiean Hi-TechLtd is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Final Word

Following Zhengzhou Jiean Hi-TechLtd's share price tumble, its P/E is now hanging on to the median market P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Zhengzhou Jiean Hi-TechLtd currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Zhengzhou Jiean Hi-TechLtd (1 is a bit concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Zhengzhou Jiean Hi-TechLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.