Investors Appear Satisfied With Xiamen Amoytop Biotech Co., Ltd.'s (SHSE:688278) Prospects As Shares Rocket 26%

Xiamen Amoytop Biotech Co., Ltd. (SHSE:688278) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 86%.

After such a large jump in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 25x, you may consider Xiamen Amoytop Biotech as a stock to potentially avoid with its 37.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Xiamen Amoytop Biotech 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 Xiamen Amoytop Biotech

Keen to find out how analysts think Xiamen Amoytop Biotech's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Xiamen Amoytop Biotech's Growth Trending?

In order to justify its P/E ratio, Xiamen Amoytop Biotech would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 84% gain to the company's bottom line. Pleasingly, EPS has also lifted 364% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 28% each year during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 19% each year, which is noticeably less attractive.

With this information, we can see why Xiamen Amoytop Biotech 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.

What We Can Learn From Xiamen Amoytop Biotech's P/E?

The large bounce in Xiamen Amoytop Biotech's shares has lifted the company's P/E to a fairly high level. 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 Xiamen Amoytop Biotech maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Xiamen Amoytop Biotech (at least 1 which is concerning), and understanding them should be part of your investment process.

If you're unsure about the strength of Xiamen Amoytop Biotech'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.