Giant Biogene Holding Co., Ltd.'s (HKG:2367) Share Price Matching Investor Opinion

With a price-to-earnings (or "P/E") ratio of 40.7x Giant Biogene Holding Co., Ltd. (HKG:2367) may be sending very bearish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios under 9x and even P/E's lower than 4x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Giant Biogene Holding as its earnings have risen in spite of the market's earnings going into reverse. 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.

See our latest analysis for Giant Biogene Holding

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

How Is Giant Biogene Holding's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 19% last year. Pleasingly, EPS has also lifted 86% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 31% as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 20% growth forecast for the broader market.

In light of this, it's understandable that Giant Biogene Holding's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

We've established that Giant Biogene Holding maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Giant Biogene Holding 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 Giant Biogene Holding. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.