Zhejiang Jiecang Linear Motion Technology Co.,Ltd. (SHSE:603583) Looks Just Right With A 26% Price Jump

The Zhejiang Jiecang Linear Motion Technology Co.,Ltd. (SHSE:603583) share price has done very well over the last month, posting an excellent gain of 26%. Notwithstanding the latest gain, the annual share price return of 8.0% isn't as impressive.

After such a large jump in price, Zhejiang Jiecang Linear Motion TechnologyLtd's price-to-earnings (or "P/E") ratio of 40.5x might make it look like a 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 elevated P/E.

Zhejiang Jiecang Linear Motion TechnologyLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Zhejiang Jiecang Linear Motion TechnologyLtd

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How Is Zhejiang Jiecang Linear Motion TechnologyLtd's Growth Trending?

Zhejiang Jiecang Linear Motion TechnologyLtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 37%. As a result, earnings from three years ago have also fallen 53% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 49% per annum over the next three years. That's shaping up to be materially higher than the 21% per year growth forecast for the broader market.

In light of this, it's understandable that Zhejiang Jiecang Linear Motion TechnologyLtd's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Zhejiang Jiecang Linear Motion TechnologyLtd's P/E

The large bounce in Zhejiang Jiecang Linear Motion TechnologyLtd's shares has lifted the company's P/E to a fairly high level. 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 Zhejiang Jiecang Linear Motion TechnologyLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Zhejiang Jiecang Linear Motion TechnologyLtd you should know about.

If you're unsure about the strength of Zhejiang Jiecang Linear Motion TechnologyLtd'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.