Shandong Jincheng Pharmaceutical Group Co., Ltd's (SZSE:300233) Shares Bounce 30% But Its Business Still Trails The Market

Shandong Jincheng Pharmaceutical Group Co., Ltd (SZSE:300233) shareholders have had their patience rewarded with a 30% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 3.5% isn't as attractive.

Although its price has surged higher, Shandong Jincheng Pharmaceutical Group's price-to-earnings (or "P/E") ratio of 33.9x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 39x and even P/E's above 77x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Shandong Jincheng Pharmaceutical Group has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Shandong Jincheng Pharmaceutical Group

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shandong Jincheng Pharmaceutical Group will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

Shandong Jincheng Pharmaceutical Group's 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 34% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Shandong Jincheng Pharmaceutical Group's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Shandong Jincheng Pharmaceutical Group's P/E

The latest share price surge wasn't enough to lift Shandong Jincheng Pharmaceutical Group's P/E close to the market median. 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.

We've established that Shandong Jincheng Pharmaceutical Group maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Shandong Jincheng Pharmaceutical Group that you need to take into consideration.

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.

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.