Market Cool On Yixintang Pharmaceutical Group Co., Ltd.'s (SZSE:002727) Earnings Pushing Shares 27% Lower

Yixintang Pharmaceutical Group Co., Ltd. (SZSE:002727) shares have had a horrible month, losing 27% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 40% share price drop.

Although its price has dipped substantially, Yixintang Pharmaceutical Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.2x, since almost half of all companies in China have P/E ratios greater than 31x and even P/E's higher than 57x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Yixintang Pharmaceutical Group hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Yixintang Pharmaceutical Group

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

How Is Yixintang Pharmaceutical Group's Growth Trending?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 49%. The last three years don't look nice either as the company has shrunk EPS by 37% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 35% per year as estimated by the analysts watching the company. With the market only predicted to deliver 25% per annum, the company is positioned for a stronger earnings result.

With this information, we find it odd that Yixintang Pharmaceutical Group 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 Final Word

Yixintang Pharmaceutical Group's recently weak share price has pulled its P/E below most other companies. 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.

Our examination of Yixintang Pharmaceutical Group'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. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Yixintang Pharmaceutical Group that you should be aware of.

You might be able to find a better investment than Yixintang Pharmaceutical Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.