Shenyang Xingqi Pharmaceutical Co.,Ltd.'s (SZSE:300573) P/E Is Still On The Mark Following 49% Share Price Bounce

Shenyang Xingqi Pharmaceutical Co.,Ltd. (SZSE:300573) shareholders are no doubt pleased to see that the share price has bounced 49% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.7% in the last twelve months.

After such a large jump in price, Shenyang Xingqi PharmaceuticalLtd's price-to-earnings (or "P/E") ratio of 55.1x 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 33x and even P/E's below 19x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Shenyang Xingqi PharmaceuticalLtd 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.

Check out our latest analysis for Shenyang Xingqi PharmaceuticalLtd

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

Is There Enough Growth For Shenyang Xingqi PharmaceuticalLtd?

In order to justify its P/E ratio, Shenyang Xingqi PharmaceuticalLtd would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 76% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 91% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 34% per annum as estimated by the lone analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 18% per year, which is noticeably less attractive.

With this information, we can see why Shenyang Xingqi PharmaceuticalLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Shenyang Xingqi PharmaceuticalLtd have built up some good momentum lately, which has really inflated its P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Shenyang Xingqi PharmaceuticalLtd'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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Shenyang Xingqi PharmaceuticalLtd you should be aware of.

You might be able to find a better investment than Shenyang Xingqi PharmaceuticalLtd. 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.