Stock Analysis

SciClone Pharmaceuticals (Holdings) Limited's (HKG:6600) 25% Dip In Price Shows Sentiment Is Matching Earnings

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The SciClone Pharmaceuticals (Holdings) Limited (HKG:6600) share price has fared very poorly over the last month, falling by a substantial 25%. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Following the heavy fall in price, given close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 11x, you may consider SciClone Pharmaceuticals (Holdings) as an attractive investment with its 6.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for SciClone Pharmaceuticals (Holdings) 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 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 SciClone Pharmaceuticals (Holdings)

SEHK:6600 Price Based on Past Earnings July 27th 2021
Keen to find out how analysts think SciClone Pharmaceuticals (Holdings)'s future stacks up against the industry? In that case, our free report is a great place to start.

How Is SciClone Pharmaceuticals (Holdings)'s Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like SciClone Pharmaceuticals (Holdings)'s to be considered reasonable.

Retrospectively, the last year delivered an exceptional 21% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 3,715% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 6.9% per year as estimated by the four analysts watching the company. Meanwhile, the broader market is forecast to expand by 20% per year, which paints a poor picture.

With this information, we are not surprised that SciClone Pharmaceuticals (Holdings) is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From SciClone Pharmaceuticals (Holdings)'s P/E?

SciClone Pharmaceuticals (Holdings)'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.

We've established that SciClone Pharmaceuticals (Holdings) maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with SciClone Pharmaceuticals (Holdings) (including 1 which shouldn't be ignored).

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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This article by Simply Wall St is general in nature. 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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