Why Investors Shouldn't Be Surprised By Jinan Acetate Chemical Co., Ltd.'s (TWSE:4763) 25% Share Price Surge

The Jinan Acetate Chemical Co., Ltd. (TWSE:4763) share price has done very well over the last month, posting an excellent gain of 25%. The annual gain comes to 244% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Jinan Acetate Chemical's price-to-earnings (or "P/E") ratio of 25x might make it look like a sell right now compared to the market in Taiwan, where around half of the companies have P/E ratios below 22x and even P/E's below 15x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been quite advantageous for Jinan Acetate Chemical as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Jinan Acetate Chemical

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jinan Acetate Chemical's earnings, revenue and cash flow.

Is There Enough Growth For Jinan Acetate Chemical?

There's an inherent assumption that a company should outperform the market for P/E ratios like Jinan Acetate Chemical's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 223% gain to the company's bottom line. Pleasingly, EPS has also lifted 580% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Jinan Acetate Chemical's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Jinan Acetate Chemical's P/E?

Jinan Acetate Chemical's P/E is getting right up there since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Jinan Acetate Chemical 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. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Jinan Acetate Chemical that 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.

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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.