Market Cool On JIADE Limited's (NASDAQ:JDZG) Earnings Pushing Shares 50% Lower

The JIADE Limited (NASDAQ:JDZG) share price has fared very poorly over the last month, falling by a substantial 50%. For any long-term shareholders, the last month ends a year to forget by locking in a 68% share price decline.

In spite of the heavy fall in price, JIADE may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.3x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 33x 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 limited.

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As an illustration, earnings have deteriorated at JIADE over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, 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.

See our latest analysis for JIADE

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

Is There Any Growth For JIADE?

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

Retrospectively, the last year delivered a frustrating 46% decrease to the company's bottom line. Even so, admirably EPS has lifted 1,195% 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 13% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that JIADE's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From JIADE's P/E?

JIADE's P/E has taken a tumble along with its share price. 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 JIADE currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware JIADE is showing 5 warning signs in our investment analysis, and 3 of those are potentially serious.

If these risks are making you reconsider your opinion on JIADE, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.