Yantai Dongcheng Pharmaceutical Group Co.,Ltd.'s (SZSE:002675) P/E Is On The Mark

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Yantai Dongcheng Pharmaceutical Group Co.,Ltd. (SZSE:002675) as a stock to avoid entirely with its 47.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Yantai Dongcheng Pharmaceutical GroupLtd 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Yantai Dongcheng Pharmaceutical GroupLtd

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

How Is Yantai Dongcheng Pharmaceutical GroupLtd's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. The latest three year period has also seen a 19% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 69% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 41%, which is noticeably less attractive.

With this information, we can see why Yantai Dongcheng Pharmaceutical GroupLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Yantai Dongcheng Pharmaceutical GroupLtd's 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.

As we suspected, our examination of Yantai Dongcheng Pharmaceutical GroupLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Yantai Dongcheng Pharmaceutical GroupLtd that you should be aware of.

Of course, you might also be able to find a better stock than Yantai Dongcheng Pharmaceutical GroupLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.