Shanghai Runda Medical Technology Co., Ltd. (SHSE:603108) Stock Rockets 31% But Many Are Still Ignoring The Company

Those holding Shanghai Runda Medical Technology Co., Ltd. (SHSE:603108) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days bring the annual gain to a very sharp 55%.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Shanghai Runda Medical Technology's P/E ratio of 28.2x, since the median price-to-earnings (or "P/E") ratio in China is also close to 30x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Shanghai Runda Medical Technology certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Shanghai Runda Medical Technology

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Is There Some Growth For Shanghai Runda Medical Technology?

In order to justify its P/E ratio, Shanghai Runda Medical Technology would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 7.9% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 51% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 48% as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

In light of this, it's curious that Shanghai Runda Medical Technology's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Shanghai Runda Medical Technology's P/E?

Its shares have lifted substantially and now Shanghai Runda Medical Technology's P/E is also back up to the market median. 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 Shanghai Runda Medical Technology's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E 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 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Shanghai Runda Medical Technology (1 is a bit concerning!) that you should be aware of before investing here.

You might be able to find a better investment than Shanghai Runda Medical Technology. 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.