Market Cool On Hangzhou Bio-Sincerity Pharma-Tech Co.,Ltd.'s (SZSE:301096) Earnings Pushing Shares 27% Lower

To the annoyance of some shareholders, Hangzhou Bio-Sincerity Pharma-Tech Co.,Ltd. (SZSE:301096) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 24% in that time.

Although its price has dipped substantially, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may still consider Hangzhou Bio-Sincerity Pharma-TechLtd as an attractive investment with its 17.3x P/E ratio. 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 advantageous for Hangzhou Bio-Sincerity Pharma-TechLtd as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Hangzhou Bio-Sincerity Pharma-TechLtd

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Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Hangzhou Bio-Sincerity Pharma-TechLtd's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 37% last year. Pleasingly, EPS has also lifted 299% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 29% each year during the coming three years according to the four analysts following the company. That's shaping up to be materially higher than the 24% per year growth forecast for the broader market.

In light of this, it's peculiar that Hangzhou Bio-Sincerity Pharma-TechLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Hangzhou Bio-Sincerity Pharma-TechLtd's P/E

Hangzhou Bio-Sincerity Pharma-TechLtd's recently weak share price has pulled its P/E below most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Hangzhou Bio-Sincerity Pharma-TechLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Hangzhou Bio-Sincerity Pharma-TechLtd has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Hangzhou Bio-Sincerity Pharma-TechLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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