With a price-to-earnings (or "P/E") ratio of 45.5x Jiangxi Lianchuang Opto-Electronic Science&Technologyco.,Ltd (SHSE:600363) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 34x and even P/E's lower than 20x 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 as high as it is.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Jiangxi Lianchuang Opto-Electronic Science&Technologyco.Ltd has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors' willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Jiangxi Lianchuang Opto-Electronic Science&Technologyco.Ltd
How Is Jiangxi Lianchuang Opto-Electronic Science&Technologyco.Ltd's Growth Trending?
There's an inherent assumption that a company should outperform the market for P/E ratios like Jiangxi Lianchuang Opto-Electronic Science&Technologyco.Ltd's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 54%. The latest three year period has also seen a 23% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 76% over the next year. Meanwhile, the rest of the market is forecast to only expand by 44%, which is noticeably less attractive.
In light of this, it's understandable that Jiangxi Lianchuang Opto-Electronic Science&Technologyco.Ltd's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Final Word
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.
As we suspected, our examination of Jiangxi Lianchuang Opto-Electronic Science&Technologyco.Ltd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Jiangxi Lianchuang Opto-Electronic Science&Technologyco.Ltd with six simple checks on some of these key factors.
Of course, you might also be able to find a better stock than Jiangxi Lianchuang Opto-Electronic Science&Technologyco.Ltd. 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.