Risks To Shareholder Returns Are Elevated At These Prices For Haisco Pharmaceutical Group Co., Ltd. (SZSE:002653)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Haisco Pharmaceutical Group Co., Ltd. (SZSE:002653) as a stock to avoid entirely with its 70.6x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Haisco Pharmaceutical Group 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 Haisco Pharmaceutical Group

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

How Is Haisco Pharmaceutical Group's Growth Trending?

In order to justify its P/E ratio, Haisco Pharmaceutical Group would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 115% gain to the company's bottom line. Still, incredibly EPS has fallen 29% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 6.8% over the next year. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

In light of this, it's alarming that Haisco Pharmaceutical Group's P/E sits above the majority of other companies. 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. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Haisco Pharmaceutical Group's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Haisco Pharmaceutical Group's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Haisco Pharmaceutical Group that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.