Investors Still Aren't Entirely Convinced By Lepu Medical Technology (Beijing) Co., Ltd.'s (SZSE:300003) Earnings Despite 33% Price Jump

Those holding Lepu Medical Technology (Beijing) Co., Ltd. (SZSE:300003) shares would be relieved that the share price has rebounded 33% 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.

In spite of the firm bounce in price, Lepu Medical Technology (Beijing) may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 22.7x, since almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 62x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Lepu Medical Technology (Beijing) as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Lepu Medical Technology (Beijing)

Keen to find out how analysts think Lepu Medical Technology (Beijing)'s future stacks up against the industry? In that case, our free report is a great place to start.

How Is Lepu Medical Technology (Beijing)'s Growth Trending?

In order to justify its P/E ratio, Lepu Medical Technology (Beijing) 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 48%. 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. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 29% per year over the next three years. That's shaping up to be materially higher than the 18% each year growth forecast for the broader market.

In light of this, it's peculiar that Lepu Medical Technology (Beijing)'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

Despite Lepu Medical Technology (Beijing)'s shares building up a head of steam, its P/E still lags 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 Lepu Medical Technology (Beijing)'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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Lepu Medical Technology (Beijing) that you should be aware of.

If you're unsure about the strength of Lepu Medical Technology (Beijing)'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.