Positive Sentiment Still Eludes Anhui Huaheng Biotechnology Co., Ltd. (SHSE:688639) Following 25% Share Price Slump

Anhui Huaheng Biotechnology Co., Ltd. (SHSE:688639) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 65% share price decline.

In spite of the heavy fall in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may still consider Anhui Huaheng Biotechnology as an attractive investment with its 20.2x P/E ratio. 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 Anhui Huaheng Biotechnology 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. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Anhui Huaheng Biotechnology

Want the full picture on analyst estimates for the company? Then our free report on Anhui Huaheng Biotechnology will help you uncover what's on the horizon.

How Is Anhui Huaheng Biotechnology's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Anhui Huaheng Biotechnology's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 84% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 35% during the coming year according to the five analysts following the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is not materially different.

With this information, we find it odd that Anhui Huaheng Biotechnology is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Anhui Huaheng Biotechnology's P/E?

The softening of Anhui Huaheng Biotechnology's shares means its P/E is now sitting at a pretty low level. 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 Anhui Huaheng Biotechnology currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 4 warning signs for Anhui Huaheng Biotechnology you should be aware of, and 2 of them are a bit concerning.

If you're unsure about the strength of Anhui Huaheng Biotechnology'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.