Optimistic Investors Push Jiangsu Yinhe Electronics Co.,Ltd. (SZSE:002519) Shares Up 28% But Growth Is Lacking

Jiangsu Yinhe Electronics Co.,Ltd. (SZSE:002519) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.5% in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Jiangsu Yinhe ElectronicsLtd's P/E ratio of 30.1x, since the median price-to-earnings (or "P/E") ratio in China is also close to 30x. 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.

Recent times have been quite advantageous for Jiangsu Yinhe ElectronicsLtd as its earnings have been rising very briskly. 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.

Check out our latest analysis for Jiangsu Yinhe ElectronicsLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jiangsu Yinhe ElectronicsLtd will help you shine a light on its historical performance.

Is There Some Growth For Jiangsu Yinhe ElectronicsLtd?

In order to justify its P/E ratio, Jiangsu Yinhe ElectronicsLtd would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 34% last year. The latest three year period has also seen a 12% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

This is in contrast to the rest of the market, which is expected to grow by 41% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Jiangsu Yinhe ElectronicsLtd'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 Bottom Line On Jiangsu Yinhe ElectronicsLtd's P/E

Its shares have lifted substantially and now Jiangsu Yinhe ElectronicsLtd's P/E is also back up to the market median. 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 Jiangsu Yinhe ElectronicsLtd 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. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Having said that, be aware Jiangsu Yinhe ElectronicsLtd is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than Jiangsu Yinhe ElectronicsLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.