Market Cool On Yixintang Pharmaceutical Group Co., Ltd.'s (SZSE:002727) Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 27x, you may consider Yixintang Pharmaceutical Group Co., Ltd. (SZSE:002727) as an attractive investment with its 21.9x 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 haven't been advantageous for Yixintang Pharmaceutical Group as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Yixintang Pharmaceutical Group

Keen to find out how analysts think Yixintang Pharmaceutical Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Yixintang Pharmaceutical Group's Growth Trending?

In order to justify its P/E ratio, Yixintang Pharmaceutical Group would need to produce sluggish growth that's trailing 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 70%. The last three years don't look nice either as the company has shrunk EPS by 64% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 52% per annum during the coming three years according to the ten analysts following the company. With the market only predicted to deliver 19% per year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Yixintang Pharmaceutical Group's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

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 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. 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.

Before you take the next step, you should know about the 1 warning sign for Yixintang Pharmaceutical Group that we have uncovered.

Of course, you might also be able to find a better stock than Yixintang Pharmaceutical Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.