Jiangsu New Energy Development Co., Ltd. (SHSE:603693) Soars 34% But It's A Story Of Risk Vs Reward

The Jiangsu New Energy Development Co., Ltd. (SHSE:603693) share price has done very well over the last month, posting an excellent gain of 34%. Looking back a bit further, it's encouraging to see the stock is up 29% in the last year.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 39x, you may still consider Jiangsu New Energy Development as an attractive investment with its 22.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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The earnings growth achieved at Jiangsu New Energy Development over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

Check out our latest analysis for Jiangsu New Energy Development

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

Is There Any Growth For Jiangsu New Energy Development?

There's an inherent assumption that a company should underperform the market for P/E ratios like Jiangsu New Energy Development's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 9.4%. Pleasingly, EPS has also lifted 157% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's about the same on an annualised basis.

With this information, we find it odd that Jiangsu New Energy Development is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

What We Can Learn From Jiangsu New Energy Development's P/E?

Jiangsu New Energy Development's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 New Energy Development revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Jiangsu New Energy Development (1 is a bit concerning!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than Jiangsu New Energy Development. 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.