Jiangxi Synergy Pharmaceutical Co., Ltd. (SZSE:300636) Stock Rockets 43% But Many Are Still Ignoring The Company

Jiangxi Synergy Pharmaceutical Co., Ltd. (SZSE:300636) shares have had a really impressive month, gaining 43% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.3% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that Jiangxi Synergy Pharmaceutical's price-to-earnings (or "P/E") ratio of 36.1x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 34x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings that are retreating more than the market's of late, Jiangxi Synergy Pharmaceutical has been very sluggish. One possibility is that the P/E is moderate because investors think the company's earnings trend will eventually fall in line with most others in the market. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Jiangxi Synergy Pharmaceutical

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Is There Some Growth For Jiangxi Synergy Pharmaceutical?

In order to justify its P/E ratio, Jiangxi Synergy Pharmaceutical would need to produce growth that's similar to 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 14%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 24% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 31% each year as estimated by the two analysts watching the company. With the market only predicted to deliver 19% each year, the company is positioned for a stronger earnings result.

In light of this, it's curious that Jiangxi Synergy Pharmaceutical's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Jiangxi Synergy Pharmaceutical's P/E?

Jiangxi Synergy Pharmaceutical's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of Jiangxi Synergy Pharmaceutical's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

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

Of course, you might also be able to find a better stock than Jiangxi Synergy Pharmaceutical. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.