Jiangsu Yinhe Electronics Co.,Ltd.'s (SZSE:002519) Business Is Trailing The Market But Its Shares Aren't

It's not a stretch to say that Jiangsu Yinhe Electronics Co.,Ltd.'s (SZSE:002519) price-to-earnings (or "P/E") ratio of 26.8x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 27x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Earnings have risen firmly for Jiangsu Yinhe ElectronicsLtd recently, which is pleasing to see. One possibility is that the P/E is moderate because investors think this respectable earnings growth might not be enough to outperform the broader market in the near future. 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.

See our latest analysis for Jiangsu Yinhe ElectronicsLtd

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 Jiangsu Yinhe ElectronicsLtd's earnings, revenue and cash flow.

How Is Jiangsu Yinhe ElectronicsLtd's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Jiangsu Yinhe ElectronicsLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 8.3%. The solid recent performance means it was also able to grow EPS by 25% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 36% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Jiangsu Yinhe ElectronicsLtd is trading at a fairly similar P/E to the market. 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.

What We Can Learn From Jiangsu Yinhe ElectronicsLtd's 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 Jiangsu Yinhe ElectronicsLtd 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. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Jiangsu Yinhe ElectronicsLtd that you need to be mindful of.

If you're unsure about the strength of Jiangsu Yinhe ElectronicsLtd'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.

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