Jutze Intelligence Technology Co.,Ltd (SZSE:300802) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 9.4% over the last year.

Following the firm bounce in price, Jutze Intelligence TechnologyLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 54.8x, since almost half of all companies in China have P/E ratios under 33x and even P/E's lower than 20x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

For example, consider that Jutze Intelligence TechnologyLtd's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Jutze Intelligence TechnologyLtd's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Jutze Intelligence TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 50% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 21% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 36% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Jutze Intelligence TechnologyLtd is trading at a P/E higher than the market. 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.

The Bottom Line On Jutze Intelligence TechnologyLtd's P/E

Jutze Intelligence TechnologyLtd's P/E is flying high just like its stock has during the last month. 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 Jutze Intelligence TechnologyLtd currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Jutze Intelligence TechnologyLtd you should know about.

Of course, you might also be able to find a better stock than Jutze Intelligence TechnologyLtd. 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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