Jinxin Fertility Group Limited (HKG:1951) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 32% in the last year.
Following the firm bounce in price, Jinxin Fertility Group's price-to-earnings (or "P/E") ratio of 30.5x might make it look like a strong sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 10x and even P/E's below 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Jinxin Fertility Group hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, 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.
See our latest analysis for Jinxin Fertility Group
Is There Enough Growth For Jinxin Fertility Group?
The only time you'd be truly comfortable seeing a P/E as steep as Jinxin Fertility Group's is when the company's growth is on track to outshine the market decidedly.
Retrospectively, the last year delivered a frustrating 18% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 25% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the analysts watching the company. With the market only predicted to deliver 14% per year, the company is positioned for a stronger earnings result.
With this information, we can see why Jinxin Fertility Group is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From Jinxin Fertility Group's P/E?
The strong share price surge has got Jinxin Fertility Group's P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that Jinxin Fertility Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Jinxin Fertility Group that you should be aware of.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.