Slammed 29% Anhui Huaheng Biotechnology Co., Ltd. (SHSE:688639) Screens Well Here But There Might Be A Catch

To the annoyance of some shareholders, Anhui Huaheng Biotechnology Co., Ltd. (SHSE:688639) shares are down a considerable 29% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 56% loss during that time.

Even after such a large drop in price, Anhui Huaheng Biotechnology's price-to-earnings (or "P/E") ratio of 16.8x might still 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 52x 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 have been pleasing for Anhui Huaheng Biotechnology as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Anhui Huaheng Biotechnology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Anhui Huaheng Biotechnology.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Anhui Huaheng Biotechnology would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 25% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 172% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 25% per year during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 20% per year growth forecast for the broader market.

In light of this, it's peculiar that Anhui Huaheng Biotechnology's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Anhui Huaheng Biotechnology's recently weak share price has pulled its P/E below most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Anhui Huaheng Biotechnology'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. 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.

Before you settle on your opinion, we've discovered 3 warning signs for Anhui Huaheng Biotechnology (2 shouldn't be ignored!) that you should be aware of.

Of course, you might also be able to find a better stock than Anhui Huaheng Biotechnology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.