The Price Is Right For JiaChen Holding Group Limited (HKG:1937) Even After Diving 28%

Unfortunately for some shareholders, the JiaChen Holding Group Limited (HKG:1937) share price has dived 28% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 64% loss during that time.

In spite of the heavy fall in price, given close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 8x, you may still consider JiaChen Holding Group as a stock to avoid entirely with its 22x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

For example, consider that JiaChen Holding Group's financial performance has been poor lately as its earnings have been in decline. 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 JiaChen Holding Group

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

Is There Enough Growth For JiaChen Holding Group?

In order to justify its P/E ratio, JiaChen Holding Group would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 45% decrease to the company's bottom line. Even so, admirably EPS has lifted 684% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 19% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that JiaChen Holding Group's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

JiaChen Holding Group's shares may have retreated, but its P/E is still flying high. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that JiaChen Holding Group maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware JiaChen Holding Group is showing 4 warning signs in our investment analysis, and 1 of those is concerning.

If you're unsure about the strength of JiaChen Holding Group'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.