There's Reason For Concern Over Jiangsu Sinopep-Allsino Biopharmaceutical Co., Ltd.'s (SHSE:688076) Massive 27% Price Jump

The Jiangsu Sinopep-Allsino Biopharmaceutical Co., Ltd. (SHSE:688076) share price has done very well over the last month, posting an excellent gain of 27%. The last 30 days bring the annual gain to a very sharp 55%.

Following the firm bounce in price, Jiangsu Sinopep-Allsino Biopharmaceutical may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 69.8x, since almost half of all companies in China have P/E ratios under 30x and even P/E's lower than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Jiangsu Sinopep-Allsino Biopharmaceutical has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Jiangsu Sinopep-Allsino Biopharmaceutical

Keen to find out how analysts think Jiangsu Sinopep-Allsino Biopharmaceutical's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Jiangsu Sinopep-Allsino Biopharmaceutical's Growth Trending?

Jiangsu Sinopep-Allsino Biopharmaceutical's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 25% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 1.7% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 24% as estimated by the dual analysts watching the company. With the market predicted to deliver 42% growth , the company is positioned for a weaker earnings result.

With this information, we find it concerning that Jiangsu Sinopep-Allsino Biopharmaceutical is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Final Word

Shares in Jiangsu Sinopep-Allsino Biopharmaceutical have built up some good momentum lately, which has really inflated its P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Jiangsu Sinopep-Allsino Biopharmaceutical currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Jiangsu Sinopep-Allsino Biopharmaceutical with six simple checks will allow you to discover any risks that could be an issue.

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.