Pharmaron Beijing Co., Ltd. (SZSE:300759) Shares Fly 29% But Investors Aren't Buying For Growth

Despite an already strong run, Pharmaron Beijing Co., Ltd. (SZSE:300759) shares have been powering on, with a gain of 29% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 19% in the last twelve months.

Even after such a large jump in price, Pharmaron Beijing may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 23.3x, since almost half of all companies in China have P/E ratios greater than 29x and even P/E's higher than 54x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Pharmaron Beijing as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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 Pharmaron Beijing

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

What Are Growth Metrics Telling Us About The Low P/E?

Pharmaron Beijing's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 22% gain to the company's bottom line. Pleasingly, EPS has also lifted 54% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 4.5% per year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 19% each year growth forecast for the broader market.

With this information, we can see why Pharmaron Beijing 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 Pharmaron Beijing's P/E?

Pharmaron Beijing'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.

As we suspected, our examination of Pharmaron Beijing's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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

You might be able to find a better investment than Pharmaron Beijing. 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.