Investors Appear Satisfied With Tianjin Chase Sun Pharmaceutical Co.,Ltd's (SZSE:300026) Prospects

With a price-to-earnings (or "P/E") ratio of 33.5x Tianjin Chase Sun Pharmaceutical Co.,Ltd (SZSE:300026) may be sending bearish signals at the moment, given that almost half of all companies in China have P/E ratios under 27x and even P/E's lower than 16x 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 as high as it is.

Tianjin Chase Sun PharmaceuticalLtd has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Tianjin Chase Sun PharmaceuticalLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Tianjin Chase Sun PharmaceuticalLtd.

How Is Tianjin Chase Sun PharmaceuticalLtd's Growth Trending?

In order to justify its P/E ratio, Tianjin Chase Sun PharmaceuticalLtd would need to produce impressive growth in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 51%. The last three years don't look nice either as the company has shrunk EPS by 55% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 29% per annum over the next three years. With the market only predicted to deliver 19% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Tianjin Chase Sun PharmaceuticalLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Tianjin Chase Sun PharmaceuticalLtd'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.

Before you take the next step, you should know about the 3 warning signs for Tianjin Chase Sun PharmaceuticalLtd that we have uncovered.

Of course, you might also be able to find a better stock than Tianjin Chase Sun PharmaceuticalLtd. 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.