Jiangsu Sinopep-Allsino Biopharmaceutical Co., Ltd. (SHSE:688076) Stocks Shoot Up 32% But Its P/E Still Looks Reasonable

The Jiangsu Sinopep-Allsino Biopharmaceutical Co., Ltd. (SHSE:688076) share price has done very well over the last month, posting an excellent gain of 32%. The annual gain comes to 103% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Jiangsu Sinopep-Allsino Biopharmaceutical as a stock to avoid entirely with its 78.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been advantageous for Jiangsu Sinopep-Allsino Biopharmaceutical as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Jiangsu Sinopep-Allsino Biopharmaceutical

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Is There Enough Growth For Jiangsu Sinopep-Allsino Biopharmaceutical?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Jiangsu Sinopep-Allsino Biopharmaceutical's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 54% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 7.7% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 35% per year during the coming three years according to the four analysts following the company. With the market only predicted to deliver 25% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Jiangsu Sinopep-Allsino Biopharmaceutical is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has got Jiangsu Sinopep-Allsino Biopharmaceutical's P/E rushing to great heights as well. 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.

As we suspected, our examination of Jiangsu Sinopep-Allsino Biopharmaceutical's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Jiangsu Sinopep-Allsino Biopharmaceutical that you should be aware of.

If you're unsure about the strength of Jiangsu Sinopep-Allsino Biopharmaceutical'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.

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