When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 34x, you may consider Jilin OLED Material Tech Co., Ltd. (SHSE:688378) as a stock to avoid entirely with its 67.7x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
The recently shrinking earnings for Jilin OLED Material Tech have been in line with the market. One possibility is that the P/E is high because investors think the company can turn things around and break free from the broader downward trend in earnings. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for Jilin OLED Material Tech
Is There Enough Growth For Jilin OLED Material Tech?
In order to justify its P/E ratio, Jilin OLED Material Tech would need to produce outstanding growth well in excess of the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.6%. The last three years don't look nice either as the company has shrunk EPS by 11% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 97% over the next year. With the market only predicted to deliver 44%, the company is positioned for a stronger earnings result.
In light of this, it's understandable that Jilin OLED Material Tech'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 Bottom Line On Jilin OLED Material Tech'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.
As we suspected, our examination of Jilin OLED Material Tech's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.
Before you settle on your opinion, we've discovered 4 warning signs for Jilin OLED Material Tech (2 can't be ignored!) that you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.