Why We're Not Concerned About JD Health International Inc.'s (HKG:6618) Share Price

Simply Wall St.07-21

With a price-to-earnings (or "P/E") ratio of 28.5x JD Health International Inc. (HKG:6618) may be sending very bearish signals at the moment, given that almost half of all companies in Hong Kong have ...

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(HKG:6618) may be sending very bearish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios under 9x and even P/E's lower than 5x 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.     JD Health International certainly has been doing a good job lately as it's been growing earnings more than most other companies.   The P/E is probably high because investors think this strong earnings performance will continue.  You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.      Check out our latest analysis for JD Health International SEHK:6618 Price to Earnings Ratio vs Industry July 21st 2024 Keen to find out how analysts think JD Health International's future stacks up against the industry? In that case, our free report is a great place to start.  Does Growth Match The High P/E?   JD Health International's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.   Taking a look back first, we see that the company grew earnings per share by an impressive 460% last year.    Still, EPS has barely risen at all from three years ago in total, which is not ideal.  Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.     Looking ahead now, EPS is anticipated to climb by 22% each year during the coming three years according to the analysts following the company.  With the market only predicted to deliver 15% each year, the company is positioned for a stronger earnings result.  With this information, we can see why JD Health International 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 Final Word  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 JD Health International 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.      Many other vital risk factors can be found on the company's balance sheet.  Our free balance sheet analysis for JD Health International  with six simple checks will allow you to discover any risks that could be an issue.   Of course, you might also be able to find a better stock than JD Health International. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly. Valuation is complex, but we're helping make it simple.Find out whether JD Health International is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.Valuation is complex, but we're helping make it simple.Find out whether JD Health International is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. 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