Zhejiang Jolly Pharmaceutical Co.,LTD (SZSE:300181) Held Back By Insufficient Growth Even After Shares Climb 28%

Despite an already strong run, Zhejiang Jolly Pharmaceutical Co.,LTD (SZSE:300181) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 40%.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may still consider Zhejiang Jolly PharmaceuticalLTD as an attractive investment with its 27.1x 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 limited.

Recent times have been advantageous for Zhejiang Jolly PharmaceuticalLTD as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Zhejiang Jolly PharmaceuticalLTD

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How Is Zhejiang Jolly PharmaceuticalLTD's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Zhejiang Jolly PharmaceuticalLTD's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. Pleasingly, EPS has also lifted 205% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 22% each year during the coming three years according to the lone analyst following the company. Meanwhile, the rest of the market is forecast to expand by 26% per annum, which is noticeably more attractive.

In light of this, it's understandable that Zhejiang Jolly PharmaceuticalLTD's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Zhejiang Jolly PharmaceuticalLTD's P/E

Despite Zhejiang Jolly PharmaceuticalLTD's shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that Zhejiang Jolly PharmaceuticalLTD 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.

Before you take the next step, you should know about the 1 warning sign for Zhejiang Jolly PharmaceuticalLTD that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.