China Resources Boya Bio-pharmaceutical Group Co.,Ltd's (SZSE:300294) P/E Is On The Mark

China Resources Boya Bio-pharmaceutical Group Co.,Ltd's (SZSE:300294) price-to-earnings (or "P/E") ratio of 75.9x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x 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 lofty.

While the market has experienced earnings growth lately, China Resources Boya Bio-pharmaceutical GroupLtd's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for China Resources Boya Bio-pharmaceutical GroupLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Resources Boya Bio-pharmaceutical GroupLtd.

Is There Enough Growth For China Resources Boya Bio-pharmaceutical GroupLtd?

In order to justify its P/E ratio, China Resources Boya Bio-pharmaceutical GroupLtd would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 56%. The last three years don't look nice either as the company has shrunk EPS by 30% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 44% per annum during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 25% each year growth forecast for the broader market.

With this information, we can see why China Resources Boya Bio-pharmaceutical GroupLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On China Resources Boya Bio-pharmaceutical GroupLtd's P/E

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 China Resources Boya Bio-pharmaceutical GroupLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for China Resources Boya Bio-pharmaceutical GroupLtd that you need to be mindful of.

You might be able to find a better investment than China Resources Boya Bio-pharmaceutical GroupLtd. 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).

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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.