Earnings Not Telling The Story For Jiangsu Feiliks International Logistics Inc. (SZSE:300240) After Shares Rise 32%

Jiangsu Feiliks International Logistics Inc. (SZSE:300240) shares have continued their recent momentum with a 32% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 9.8% isn't as impressive.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 28x, you may consider Jiangsu Feiliks International Logistics as a stock to avoid entirely with its 77.3x P/E ratio. 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.

As an illustration, earnings have deteriorated at Jiangsu Feiliks International Logistics over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Jiangsu Feiliks International Logistics

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

Is There Enough Growth For Jiangsu Feiliks International Logistics?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Jiangsu Feiliks International Logistics' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 26%. Regardless, EPS has managed to lift by a handy 20% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly 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 concerning that Jiangsu Feiliks International Logistics is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

The strong share price surge has got Jiangsu Feiliks International Logistics' P/E rushing to great heights as well. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Jiangsu Feiliks International Logistics revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - Jiangsu Feiliks International Logistics has 1 warning sign we think you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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.

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