Benign Growth For Shenzhen Weiguang Biological Products Co., Ltd. (SZSE:002880) Underpins Its Share Price

With a price-to-earnings (or "P/E") ratio of 23.7x Shenzhen Weiguang Biological Products Co., Ltd. (SZSE:002880) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 35x and even P/E's higher than 67x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Shenzhen Weiguang Biological Products has been doing quite well of late. 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Shenzhen Weiguang Biological Products

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Weiguang Biological Products.

How Is Shenzhen Weiguang Biological Products' Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 28% last year. EPS has also lifted 20% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 14% over the next year. With the market predicted to deliver 38% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Shenzhen Weiguang Biological Products 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 Shenzhen Weiguang Biological Products' P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Shenzhen Weiguang Biological Products 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Shenzhen Weiguang Biological Products with six simple checks on some of these key factors.

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.