Jiamei Food Packaging (Chuzhou) Co.,Ltd (SZSE:002969) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 36% in that time.

Even after such a large drop in price, Jiamei Food Packaging (Chuzhou)Ltd may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 36.9x, since almost half of all companies in China have P/E ratios under 25x and even P/E's lower than 15x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Earnings have risen firmly for Jiamei Food Packaging (Chuzhou)Ltd recently, which is pleasing to see. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Jiamei Food Packaging (Chuzhou)Ltd's Growth Trending?

In order to justify its P/E ratio, Jiamei Food Packaging (Chuzhou)Ltd would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a worthy increase of 8.9%. Still, lamentably EPS has fallen 26% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 41% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's alarming that Jiamei Food Packaging (Chuzhou)Ltd's P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Jiamei Food Packaging (Chuzhou)Ltd's P/E?

Despite the recent share price weakness, Jiamei Food Packaging (Chuzhou)Ltd's P/E remains higher than most other companies. 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 Jiamei Food Packaging (Chuzhou)Ltd revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - Jiamei Food Packaging (Chuzhou)Ltd has 1 warning sign we think you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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