Jahen Household Products Co., Ltd. (SZSE:300955) shareholders have had their patience rewarded with a 36% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

Since its price has surged higher, Jahen Household Products may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 75.6x, 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.

With earnings that are retreating more than the market's of late, Jahen Household Products has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

How Is Jahen Household Products' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Jahen Household Products' is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 66%. The last three years don't look nice either as the company has shrunk EPS by 81% 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 covering the company suggest earnings should grow by 563% over the next year. With the market only predicted to deliver 37%, the company is positioned for a stronger earnings result.

With this information, we can see why Jahen Household Products is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Jahen Household Products' P/E

The strong share price surge has got Jahen Household Products' P/E rushing to great heights as well. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Jahen Household Products maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Jahen Household Products (of which 1 makes us a bit uncomfortable!) you should know about.

If you're unsure about the strength of Jahen Household Products' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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