Assessing 3SBio (SEHK:1530)’s Valuation After a Recent Pullback in Share Price

Recent Share Performance and Context

3SBio (SEHK:1530) has been drifting lower over the past week and month, even though its year to date and 1 year returns are still positive. That disconnect is where the opportunity, or risk, may sit for investors.

See our latest analysis for 3SBio.

Despite the latest pullback, which includes a 90 day share price return of minus 17.05%, 3SBio is still coming off a powerful year to date share price surge. This suggests that momentum is cooling rather than collapsing as investors reassess growth versus valuation.

If 3SBio’s volatility has you rethinking your healthcare exposure, this could be a good moment to explore other healthcare stocks that might better match your risk and return preferences.

With the share price cooling after a strong year to date run, but still trading at a sizeable discount to analyst and intrinsic value estimates, is 3SBio now a genuine opportunity, or is the market already accounting for future growth?

Price-to-Earnings of 27.2x: Is it justified?

On a price-to-earnings ratio of 27.2x at the last close of HK$29.58, 3SBio screens as cheaper than peers but still above its own fair ratio.

The price to earnings multiple compares what investors are paying today for each unit of current earnings, which is a key yardstick for profitable biopharma companies. For 3SBio, this multiple sits above the estimated fair P E level of 19.8x, implying the market is attaching a premium to its earnings, despite forecasts for declining profits over the next three years.

Against that backdrop, the stock looks like a valuation compromise, less expensive than many biotech names but demanding more than its own earnings trajectory might justify. While the SWS fair ratio of 19.8x suggests a level the market could gravitate toward if sentiment cools further, the current 27.2x still reflects a degree of optimism relative to those fundamentals.

Explore the SWS fair ratio for 3SBio

Result: Price-to-Earnings of 27.2x (ABOUT RIGHT)

However, slowing revenue and double digit net income contraction could quickly erode that optimism if execution stumbles or competitive pressures intensify.

Find out about the key risks to this 3SBio narrative.

Another View on Value

While the 27.2x earnings multiple looks only slightly stretched versus 3SBio’s fair ratio of 19.8x, our DCF model paints a stronger upside case. Shares are trading about 34.9% below an estimated HK$45.45 fair value. Is the market underestimating cash flows, or rightly discounting future profit declines?

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 3SBio 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 906 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 3SBio Narrative

If you see the story differently, or would rather stress test the numbers firsthand, you can build a personalised 3SBio view in minutes: Do it your way.

A great starting point for your 3SBio research is our analysis highlighting 2 key rewards and 1 important warning sign 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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