Market Participants Recognise Guangdong Marubi Biotechnology Co., Ltd.'s (SHSE:603983) Earnings Pushing Shares 27% Higher

Those holding Guangdong Marubi Biotechnology Co., Ltd. (SHSE:603983) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Notwithstanding the latest gain, the annual share price return of 5.7% isn't as impressive.

After such a large jump in price, Guangdong Marubi Biotechnology may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 34.3x, since almost half of all companies in China have P/E ratios under 27x and even P/E's lower than 16x are not unusual. 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.

Recent times have been pleasing for Guangdong Marubi Biotechnology as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Guangdong Marubi Biotechnology

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

How Is Guangdong Marubi Biotechnology's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Guangdong Marubi Biotechnology's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 62% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 21% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 23% per annum over the next three years. With the market only predicted to deliver 19% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Guangdong Marubi Biotechnology's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Guangdong Marubi Biotechnology's P/E is getting right up there since its shares have risen strongly. 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 Guangdong Marubi Biotechnology maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Guangdong Marubi Biotechnology, and understanding these should be part of your investment process.

You might be able to find a better investment than Guangdong Marubi Biotechnology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.