Jiaxing ZMAX Optech Co., Ltd. (SHSE:688307) Stock Rockets 34% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Jiaxing ZMAX Optech Co., Ltd. (SHSE:688307) shares have been powering on, with a gain of 34% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.8% in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Jiaxing ZMAX Optech's P/E ratio of 39.7x, since the median price-to-earnings (or "P/E") ratio in China is also close to 36x. 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.

Jiaxing ZMAX Optech certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Jiaxing ZMAX Optech

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jiaxing ZMAX Optech's earnings, revenue and cash flow.

Is There Some Growth For Jiaxing ZMAX Optech?

The only time you'd be comfortable seeing a P/E like Jiaxing ZMAX Optech's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 95%. EPS has also lifted 29% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Jiaxing ZMAX Optech's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

Jiaxing ZMAX Optech'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 Jiaxing ZMAX Optech revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Jiaxing ZMAX Optech.

Of course, you might also be able to find a better stock than Jiaxing ZMAX Optech. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.