Market Cool On Jianzhijia Pharmaceutical Chain Group Co., Ltd.'s (SHSE:605266) Earnings Pushing Shares 25% Lower

Jianzhijia Pharmaceutical Chain Group Co., Ltd. (SHSE:605266) shares have had a horrible month, losing 25% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 60% loss during that time.

Although its price has dipped substantially, Jianzhijia Pharmaceutical Chain Group's price-to-earnings (or "P/E") ratio of 13.3x might still make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 32x and even P/E's above 62x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Jianzhijia Pharmaceutical Chain Group has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Jianzhijia Pharmaceutical Chain Group

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

How Is Jianzhijia Pharmaceutical Chain Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Jianzhijia Pharmaceutical Chain Group's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a frustrating 50% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 26% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 125% as estimated by the sole analyst watching the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Jianzhijia Pharmaceutical Chain Group is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Shares in Jianzhijia Pharmaceutical Chain Group have plummeted and its P/E is now low enough to touch the ground. 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.

We've established that Jianzhijia Pharmaceutical Chain Group currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You always need to take note of risks, for example - Jianzhijia Pharmaceutical Chain Group has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Jianzhijia Pharmaceutical Chain Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.