Shanghai Allist Pharmaceuticals Co., Ltd.'s (SHSE:688578) Shares Bounce 43% But Its Business Still Trails The Market

Shanghai Allist Pharmaceuticals Co., Ltd. (SHSE:688578) shares have had a really impressive month, gaining 43% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 76% in the last year.

Although its price has surged higher, Shanghai Allist Pharmaceuticals' price-to-earnings (or "P/E") ratio of 26.4x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 34x and even P/E's above 64x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Shanghai Allist Pharmaceuticals 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 degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Shanghai Allist Pharmaceuticals

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

How Is Shanghai Allist Pharmaceuticals' Growth Trending?

Shanghai Allist Pharmaceuticals' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 254% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 17% each year during the coming three years according to the two analysts following the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

With this information, we can see why Shanghai Allist Pharmaceuticals is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Shanghai Allist Pharmaceuticals' P/E?

Shanghai Allist Pharmaceuticals' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of Shanghai Allist Pharmaceuticals' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Shanghai Allist Pharmaceuticals (1 can't be ignored!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.