Shanghai Pharmaceuticals Holding Co., Ltd's (SHSE:601607) Earnings Are Not Doing Enough For Some Investors

Shanghai Pharmaceuticals Holding Co., Ltd's (SHSE:601607) price-to-earnings (or "P/E") ratio of 18.1x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 33x and even P/E's above 61x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Shanghai Pharmaceuticals Holding 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.

See our latest analysis for Shanghai Pharmaceuticals Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Pharmaceuticals Holding.

Is There Any Growth For Shanghai Pharmaceuticals Holding?

In order to justify its P/E ratio, Shanghai Pharmaceuticals Holding would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 35%. This means it has also seen a slide in earnings over the longer-term as EPS is down 48% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 21% each year as estimated by the nine analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 26% each year, which is noticeably more attractive.

In light of this, it's understandable that Shanghai Pharmaceuticals Holding's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Shanghai Pharmaceuticals Holding maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

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

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

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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.