Jiangsu Azure Corporation (SZSE:002245) Looks Just Right With A 31% Price Jump

Despite an already strong run, Jiangsu Azure Corporation (SZSE:002245) shares have been powering on, with a gain of 31% in the last thirty days. The annual gain comes to 116% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Jiangsu Azure may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 57.9x, since almost half of all companies in China have P/E ratios under 38x and even P/E's lower than 21x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Jiangsu Azure has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

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Is There Enough Growth For Jiangsu Azure?

Jiangsu Azure's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 311% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 54% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 77% during the coming year according to the seven analysts following the company. That's shaping up to be materially higher than the 37% growth forecast for the broader market.

With this information, we can see why Jiangsu Azure is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has got Jiangsu Azure's P/E rushing to great heights as well. 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 Azure 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. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Jiangsu Azure is showing 2 warning signs in our investment analysis, you should know about.

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

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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.