Little Excitement Around JinkoSolar Holding Co., Ltd.'s (NYSE:JKS) Earnings
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JinkoSolar Holding Co., Ltd.'s (NYSE:JKS) price-to-earnings (or "P/E") ratio of 5.8x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 34x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
Recent times have been advantageous for JinkoSolar Holding as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for JinkoSolar Holding
Does JinkoSolar Holding Have A Relatively High Or Low P/E For Its Industry?
It's plausible that JinkoSolar Holding's particularly low P/E ratio could be a result of tendencies within its own industry. You'll notice in the figure below that P/E ratios in the Semiconductor industry are significantly higher than the market. So it appears the company's ratio isn't currently influenced by these industry numbers whatsoever. In the context of the Semiconductor industry's current setting, most of its constituents' P/E's would be expected to be raised up greatly. Still, the strength of the company's earnings will most likely determine where its P/E shall sit.
Want the full picture on analyst estimates for the company? Then our free report on JinkoSolar Holding will help you uncover what's on the horizon.
How Is JinkoSolar Holding's Growth Trending?
There's an inherent assumption that a company should far underperform the market for P/E ratios like JinkoSolar Holding's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 131%. The latest three year period has also seen a 23% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Looking ahead now, EPS is anticipated to slump, contracting by 14% per year during the coming three years according to the seven analysts following the company. Meanwhile, the broader market is forecast to expand by 9.3% per year, which paints a poor picture.
In light of this, it's understandable that JinkoSolar Holding's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Bottom Line On JinkoSolar Holding's P/E
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.
As we suspected, our examination of JinkoSolar Holding's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
It is also worth noting that we have found 3 warning signs for JinkoSolar Holding (2 are concerning!) that you need to take into consideration.
If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.
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.
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