Investors Aren't Buying China Resources Sanjiu Medical & Pharmaceutical Co., Ltd.'s (SZSE:000999) Earnings

With a price-to-earnings (or "P/E") ratio of 18.4x China Resources Sanjiu Medical & Pharmaceutical Co., Ltd. (SZSE:000999) may be sending 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 59x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been advantageous for China Resources Sanjiu Medical & Pharmaceutical as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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.

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Is There Any Growth For China Resources Sanjiu Medical & Pharmaceutical?

In order to justify its P/E ratio, China Resources Sanjiu Medical & Pharmaceutical would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 27% gain to the company's bottom line. Pleasingly, EPS has also lifted 68% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 14% over the next year. With the market predicted to deliver 40% growth , the company is positioned for a weaker earnings result.

With this information, we can see why China Resources Sanjiu Medical & 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 China Resources Sanjiu Medical & Pharmaceutical's P/E

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.

We've established that China Resources Sanjiu Medical & Pharmaceutical maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

It is also worth noting that we have found 1 warning sign for China Resources Sanjiu Medical & Pharmaceutical that you need to take into consideration.

If these risks are making you reconsider your opinion on China Resources Sanjiu Medical & Pharmaceutical, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.