Betta Pharmaceuticals Co., Ltd. (SZSE:300558) Not Lagging Market On Growth Or Pricing

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 34x, you may consider Betta Pharmaceuticals Co., Ltd. (SZSE:300558) as a stock to avoid entirely with its 53.8x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Betta Pharmaceuticals certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Betta Pharmaceuticals

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

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Betta Pharmaceuticals' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 33% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 50% during the coming year according to the five analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

In light of this, it's understandable that Betta Pharmaceuticals' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Betta Pharmaceuticals' P/E

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 Betta Pharmaceuticals' 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.

You always need to take note of risks, for example - Betta Pharmaceuticals has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Betta Pharmaceuticals. 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.