When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 36x, you may consider JSTI Group (SZSE:300284) as a stock to potentially avoid with its 54x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

JSTI Group has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

How Is JSTI Group's Growth Trending?

In order to justify its P/E ratio, JSTI Group would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 53% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 55% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 77% as estimated by the three analysts watching the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that JSTI Group's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From JSTI Group's P/E?

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 JSTI Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - JSTI Group has 2 warning signs (and 1 which is potentially serious) we think you should know about.

If these risks are making you reconsider your opinion on JSTI Group, 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.