Market Still Lacking Some Conviction On Yifeng Pharmacy Chain Co., Ltd. (SHSE:603939)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 36x, you may consider Yifeng Pharmacy Chain Co., Ltd. (SHSE:603939) as an attractive investment with its 18.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Yifeng Pharmacy Chain as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

Check out our latest analysis for Yifeng Pharmacy Chain

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Yifeng Pharmacy Chain.

How Is Yifeng Pharmacy Chain's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Yifeng Pharmacy Chain's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 4.9%. Pleasingly, EPS has also lifted 73% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 24% each year over the next three years. That's shaping up to be materially higher than the 20% per year growth forecast for the broader market.

With this information, we find it odd that Yifeng Pharmacy Chain is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Yifeng Pharmacy Chain'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 Yifeng Pharmacy Chain's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Yifeng Pharmacy Chain that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.