Subdued Growth No Barrier To SAN BIAN SCIENCE& TECHNOLOGY Co., LTD. (SZSE:002112) With Shares Advancing 34%

SAN BIAN SCIENCE& TECHNOLOGY Co., LTD. (SZSE:002112) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 31% over that time.

Following the firm bounce in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider SAN BIAN SCIENCE& TECHNOLOGY as a stock to potentially avoid with its 43.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times have been quite advantageous for SAN BIAN SCIENCE& TECHNOLOGY as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See 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.

Is There Enough Growth For SAN BIAN SCIENCE& TECHNOLOGY?

There's an inherent assumption that a company should outperform the market for P/E ratios like SAN BIAN SCIENCE& TECHNOLOGY's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 129% gain to the company's bottom line. Pleasingly, EPS has also lifted 92% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 41% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we find it concerning that SAN BIAN SCIENCE& TECHNOLOGY is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From SAN BIAN SCIENCE& TECHNOLOGY's P/E?

SAN BIAN SCIENCE& TECHNOLOGY shares have received a push in the right direction, but its P/E is elevated too. 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 impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with SAN BIAN SCIENCE& TECHNOLOGY, and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Have 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.