Improved Earnings Required Before Tianjin Ringpu Bio-Technology Co.,Ltd. (SZSE:300119) Shares Find Their Feet

Tianjin Ringpu Bio-Technology Co.,Ltd.'s (SZSE:300119) price-to-earnings (or "P/E") ratio of 12.5x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 27x and even P/E's above 50x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With earnings growth that's superior to most other companies of late, Tianjin Ringpu Bio-TechnologyLtd has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, 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 Tianjin Ringpu Bio-TechnologyLtd

Want the full picture on analyst estimates for the company? Then our free report on Tianjin Ringpu Bio-TechnologyLtd will help you uncover what's on the horizon.

How Is Tianjin Ringpu Bio-TechnologyLtd's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Tianjin Ringpu Bio-TechnologyLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 30%. Still, incredibly EPS has fallen 11% 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 seven analysts covering the company suggest earnings should grow by 16% per year over the next three years. That's shaping up to be materially lower than the 23% each year growth forecast for the broader market.

With this information, we can see why Tianjin Ringpu Bio-TechnologyLtd 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.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Tianjin Ringpu Bio-TechnologyLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

Having said that, be aware Tianjin Ringpu Bio-TechnologyLtd is showing 2 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than Tianjin Ringpu Bio-TechnologyLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.