SAN BIAN SCIENCE& TECHNOLOGY Co., LTD. (SZSE:002112) Screens Well But There Might Be A Catch

With a price-to-earnings (or "P/E") ratio of 22.2x SAN BIAN SCIENCE& TECHNOLOGY Co., LTD. (SZSE:002112) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 58x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

SAN BIAN SCIENCE& TECHNOLOGY certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for SAN BIAN SCIENCE& TECHNOLOGY

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on SAN BIAN SCIENCE& TECHNOLOGY's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

SAN BIAN SCIENCE& TECHNOLOGY's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 173%. The strong recent performance means it was also able to grow EPS by 346% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 36% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that SAN BIAN SCIENCE& TECHNOLOGY's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On SAN BIAN SCIENCE& TECHNOLOGY's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of SAN BIAN SCIENCE& TECHNOLOGY revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for SAN BIAN SCIENCE& TECHNOLOGY that you should be aware of.

If these risks are making you reconsider your opinion on SAN BIAN SCIENCE& TECHNOLOGY, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.