CSPC Pharmaceutical Group (SEHK:1093): Evaluating Valuation After a Strong Year for Shares

CSPC Pharmaceutical Group (SEHK:1093) shares climbed slightly today, closing at HK$9.53. Investors seem to be weighing the company's recent performance and healthy earnings momentum, particularly following a near 20% gain over the past 3 months.

See our latest analysis for CSPC Pharmaceutical Group.

After a year of impressive momentum, CSPC Pharmaceutical Group's share price has surged over 105% year-to-date. This growth has been supported by healthy fundamentals and positive sentiment. Although the recent 1-month dip has reduced some of the rally's gains, long-term total shareholder return remains strong.

If you’re curious about what’s next in the sector, this could be an ideal time to discover See the full list for free.

With shares riding high after an impressive run, the big question remains: is CSPC Pharmaceutical Group still trading below its true value, or has the market already priced in all its future growth potential?

Price-to-Earnings of 25.9x: Is it justified?

CSPC Pharmaceutical Group is trading at a price-to-earnings (P/E) ratio of 25.9x, which is substantially above the Hong Kong Pharmaceuticals industry average of 13.2x. At the last close price of HK$9.53, the stock appears expensive relative to its sector peers.

The price-to-earnings ratio compares the company's current share price to its earnings per share. This provides a snapshot of how much investors are willing to pay for each unit of earnings. For a pharmaceutical company, the P/E ratio helps gauge whether the market expects high future profitability or if earnings growth is believed to be limited.

While the market may have high expectations for CSPC Pharmaceutical Group’s future earnings, the current multiple suggests that shares are priced for results stronger than what is currently forecast. Despite the premium to industry, the P/E ratio of 25.9x remains just below the estimated fair P/E of 27.3x. This indicates there could still be some justification for the current valuation if growth delivers as expected.

Explore the SWS fair ratio for CSPC Pharmaceutical Group

Result: Price-to-Earnings of 25.9x (ABOUT RIGHT)

However, slower revenue growth or unexpected industry challenges could put pressure on CSPC Pharmaceutical Group’s elevated valuation in the future.

Find out about the key risks to this CSPC Pharmaceutical Group narrative.

Another Perspective: DCF Says Shares May Be Undervalued

While the price-to-earnings ratio suggests CSPC Pharmaceutical Group is fairly valued, the SWS DCF model presents a different perspective. Based on projected future cash flows, the stock appears to be trading about 42% below its estimated fair value of HK$16.37, which suggests a potential upside.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out CSPC Pharmaceutical Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own CSPC Pharmaceutical Group Narrative

Keep in mind, if you want to approach things differently or dive into your own research, you can craft your personalized narrative in just a few minutes. Do it your way.

A great starting point for your CSPC Pharmaceutical Group research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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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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