Improved Earnings Required Before Beijing Strong Biotechnologies,Inc. (SZSE:300406) Stock's 25% Jump Looks Justified

Beijing Strong Biotechnologies,Inc. (SZSE:300406) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Beijing Strong BiotechnologiesInc as an attractive investment with its 25.4x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Beijing Strong BiotechnologiesInc has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.

View our latest analysis for Beijing Strong BiotechnologiesInc

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beijing Strong BiotechnologiesInc.

Is There Any Growth For Beijing Strong BiotechnologiesInc?

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

Retrospectively, the last year delivered an exceptional 36% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 112% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 23% during the coming year according to the dual analysts following the company. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Beijing Strong BiotechnologiesInc 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.

What We Can Learn From Beijing Strong BiotechnologiesInc's P/E?

Beijing Strong BiotechnologiesInc's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that Beijing Strong BiotechnologiesInc 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. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Beijing Strong BiotechnologiesInc with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.