Shenzhen JPT Opto-Electronics Co., Ltd.'s (SHSE:688025) 43% Jump Shows Its Popularity With Investors

Shenzhen JPT Opto-Electronics Co., Ltd. (SHSE:688025) shares have had a really impressive month, gaining 43% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 34% over that time.

Following the firm bounce in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 33x, you may consider Shenzhen JPT Opto-Electronics as a stock to potentially avoid with its 40.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Shenzhen JPT Opto-Electronics 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 Shenzhen JPT Opto-Electronics

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen JPT Opto-Electronics.

What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Shenzhen JPT Opto-Electronics' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. The latest three year period has also seen an excellent 110% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 36% each year as estimated by the three analysts watching the company. With the market only predicted to deliver 19% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Shenzhen JPT Opto-Electronics' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Shenzhen JPT Opto-Electronics shares have received a push in the right direction, but its P/E is elevated too. 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 Shenzhen JPT Opto-Electronics maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Shenzhen JPT Opto-Electronics that you need to be mindful of.

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.