Fewer Investors Than Expected Jumping On Tianjin Pharmaceutical Da Ren Tang Group Corporation Limited (SHSE:600329)

Tianjin Pharmaceutical Da Ren Tang Group Corporation Limited's (SHSE:600329) price-to-earnings (or "P/E") ratio of 25.8x 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 30x and even P/E's above 54x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, Tianjin Pharmaceutical Da Ren Tang Group has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

Check out our latest analysis for Tianjin Pharmaceutical Da Ren Tang Group

Keen to find out how analysts think Tianjin Pharmaceutical Da Ren Tang Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Tianjin Pharmaceutical Da Ren Tang Group?

In order to justify its P/E ratio, Tianjin Pharmaceutical Da Ren Tang Group would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. The latest three year period has also seen an excellent 49% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 20% per annum over the next three years. With the market predicted to deliver 21% growth each year, the company is positioned for a comparable earnings result.

With this information, we find it odd that Tianjin Pharmaceutical Da Ren Tang Group 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.

The Final Word

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 Tianjin Pharmaceutical Da Ren Tang Group's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Tianjin Pharmaceutical Da Ren Tang Group that you should be aware of.

Of course, you might also be able to find a better stock than Tianjin Pharmaceutical Da Ren Tang Group. 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.