Earnings Not Telling The Story For ChongQing Zhengchuan Pharmaceutical Packaging Co.,Ltd (SHSE:603976) After Shares Rise 29%

Those holding ChongQing Zhengchuan Pharmaceutical Packaging Co.,Ltd (SHSE:603976) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

After such a large jump in price, ChongQing Zhengchuan Pharmaceutical PackagingLtd's price-to-earnings (or "P/E") ratio of 41.5x might make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 31x and even P/E's below 19x 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 as high as it is.

For example, consider that ChongQing Zhengchuan Pharmaceutical PackagingLtd's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for ChongQing Zhengchuan Pharmaceutical PackagingLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ChongQing Zhengchuan Pharmaceutical PackagingLtd will help you shine a light on its historical performance.

Is There Enough Growth For ChongQing Zhengchuan Pharmaceutical PackagingLtd?

In order to justify its P/E ratio, ChongQing Zhengchuan Pharmaceutical PackagingLtd would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 6.7% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Comparing that to the market, which is predicted to deliver 40% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that ChongQing Zhengchuan Pharmaceutical PackagingLtd's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On ChongQing Zhengchuan Pharmaceutical PackagingLtd's P/E

ChongQing Zhengchuan Pharmaceutical PackagingLtd's P/E is getting right up there since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that ChongQing Zhengchuan Pharmaceutical PackagingLtd currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 3 warning signs for ChongQing Zhengchuan Pharmaceutical PackagingLtd (of which 1 doesn't sit too well with us!) you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.