Yahoo Finanza How Does Jiande International Holdings's (HKG:865) P/E Compare To Its Industry, After Its Big Share Price Gain?
Those holding Jiande International Holdings (HKG:865) shares must be pleased that the share price has rebounded 36% in the last thirty days. But unfortunately, the stock is still down by 8.7% over a quarter. Looking back a bit further, we're also happy to report the stock is up 84% in the last year.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). The implication here is that deep value investors might steer clear when expectations of a company are too high. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.
See our latest analysis for Jiande International Holdings
Does Jiande International Holdings Have A Relatively High Or Low P/E For Its Industry?
Jiande International Holdings's P/E of 23.83 indicates some degree of optimism towards the stock. You can see in the image below that the average P/E (6.1) for companies in the real estate industry is a lot lower than Jiande International Holdings's P/E.
Its relatively high P/E ratio indicates that Jiande International Holdings shareholders think it will perform better than other companies in its industry classification. Clearly the market expects growth, but it isn't guaranteed. So investors should delve deeper. I like to check if company insiders have been buying or selling.
How Growth Rates Impact P/E Ratios
P/E ratios primarily reflect market expectations around earnings growth rates. When earnings grow, the 'E' increases, over time. And in that case, the P/E ratio itself will drop rather quickly. And as that P/E ratio drops, the company will look cheap, unless its share price increases.
In the last year, Jiande International Holdings grew EPS like Taylor Swift grew her fan base back in 2010; the 203% gain was both fast and well deserved.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
Don't forget that the P/E ratio considers market capitalization. So it won't reflect the advantage of cash, or disadvantage of debt. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).
So What Does Jiande International Holdings's Balance Sheet Tell Us?
Jiande International Holdings has net cash of CN¥233m. This is fairly high at 29% of its market capitalization. That might mean balance sheet strength is important to the business, but should also help push the P/E a bit higher than it would otherwise be.
The Bottom Line On Jiande International Holdings's P/E Ratio
Jiande International Holdings trades on a P/E ratio of 23.8, which is above its market average of 9.4. Its net cash position is the cherry on top of its superb EPS growth. So based on this analysis we'd expect Jiande International Holdings to have a high P/E ratio. What we know for sure is that investors have become much more excited about Jiande International Holdings recently, since they have pushed its P/E ratio from 17.5 to 23.8 over the last month. For those who prefer to invest with the flow of momentum, that might mean it's time to put the stock on a watchlist, or research it. But the contrarian may see it as a missed opportunity.
When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is better than it expects, you can make money by buying and holding for the long term. Although we don't have analyst forecasts shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.
Of course you might be able to find a better stock than Jiande International Holdings. So you may wish to see this free collection of other companies that have grown earnings strongly.
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This article by Simply Wall St is general in nature. 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. Thank you for reading.
