Stock Analysis

Zhejiang Jiuzhou Pharmaceutical Co., Ltd's (SHSE:603456) Business And Shares Still Trailing The Market

SHSE:603456
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With a price-to-earnings (or "P/E") ratio of 13.8x Zhejiang Jiuzhou Pharmaceutical Co., Ltd (SHSE:603456) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 60x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

While the market has experienced earnings growth lately, Zhejiang Jiuzhou Pharmaceutical's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Zhejiang Jiuzhou Pharmaceutical

pe-multiple-vs-industry
SHSE:603456 Price to Earnings Ratio vs Industry May 24th 2024
Keen to find out how analysts think Zhejiang Jiuzhou Pharmaceutical's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Zhejiang Jiuzhou Pharmaceutical's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a frustrating 6.9% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 104% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 16% per year during the coming three years according to the six analysts following the company. That's shaping up to be materially lower than the 26% each year growth forecast for the broader market.

With this information, we can see why Zhejiang Jiuzhou Pharmaceutical is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Zhejiang Jiuzhou Pharmaceutical's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Zhejiang Jiuzhou Pharmaceutical maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Zhejiang Jiuzhou Pharmaceutical is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Valuation is complex, but we're helping make it simple.

Find out whether Zhejiang Jiuzhou Pharmaceutical is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.