Investors Give Lepu Medical Technology (Beijing) Co., Ltd. (SZSE:300003) Shares A 26% Hiding

To the annoyance of some shareholders, Lepu Medical Technology (Beijing) Co., Ltd. (SZSE:300003) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 41% share price drop.

Following the heavy fall in price, Lepu Medical Technology (Beijing)'s price-to-earnings (or "P/E") ratio of 17.8x 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 28x and even P/E's above 53x 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.

Recent times haven't been advantageous for Lepu Medical Technology (Beijing) 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. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. 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.

Check out our latest analysis for Lepu Medical Technology (Beijing)

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Is There Any Growth For Lepu Medical Technology (Beijing)?

In order to justify its P/E ratio, Lepu Medical Technology (Beijing) would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 48% 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 60% 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.

Looking ahead now, EPS is anticipated to climb by 33% per annum during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 22% per year, which is noticeably less attractive.

With this information, we find it odd that Lepu Medical Technology (Beijing) 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

Lepu Medical Technology (Beijing)'s P/E has taken a tumble along with its share price. 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 Lepu Medical Technology (Beijing) currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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.

You always need to take note of risks, for example - Lepu Medical Technology (Beijing) has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Lepu Medical Technology (Beijing), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.