The Jiangsu Yinhe Electronics Co.,Ltd. (SZSE:002519) share price has fared very poorly over the last month, falling by a substantial 26%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 13% share price drop.
Even after such a large drop in price, it's still not a stretch to say that Jiangsu Yinhe ElectronicsLtd's price-to-earnings (or "P/E") ratio of 28x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 29x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Recent times have been quite advantageous for Jiangsu Yinhe ElectronicsLtd as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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 not quite in favour.
See our latest analysis for Jiangsu Yinhe ElectronicsLtd
How Is Jiangsu Yinhe ElectronicsLtd's Growth Trending?
The only time you'd be comfortable seeing a P/E like Jiangsu Yinhe ElectronicsLtd's is when the company's growth is tracking the market closely.
If we review the last year of earnings growth, the company posted a terrific increase of 34%. The latest three year period has also seen a 12% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
This is in contrast to the rest of the market, which is expected to grow by 42% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's curious that Jiangsu Yinhe ElectronicsLtd's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.
The Bottom Line On Jiangsu Yinhe ElectronicsLtd's P/E
Following Jiangsu Yinhe ElectronicsLtd's share price tumble, its P/E is now hanging on to the median market 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.
Our examination of Jiangsu Yinhe ElectronicsLtd revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Jiangsu Yinhe ElectronicsLtd you should know about.
Of course, you might also be able to find a better stock than Jiangsu Yinhe ElectronicsLtd. 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.