Jilin Province Huinan Changlong Bio-pharmacy Company Limited (HKG:8049) Held Back By Insufficient Growth Even After Shares Climb 28%

The Jilin Province Huinan Changlong Bio-pharmacy Company Limited (HKG:8049) share price has done very well over the last month, posting an excellent gain of 28%. The last 30 days bring the annual gain to a very sharp 50%.

In spite of the firm bounce in price, Jilin Province Huinan Changlong Bio-pharmacy may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.1x, since almost half of all companies in Hong Kong have P/E ratios greater than 12x and even P/E's higher than 23x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

We've discovered 1 warning sign about Jilin Province Huinan Changlong Bio-pharmacy. View them for free.

The earnings growth achieved at Jilin Province Huinan Changlong Bio-pharmacy over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. 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.

See our latest analysis for Jilin Province Huinan Changlong Bio-pharmacy

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jilin Province Huinan Changlong Bio-pharmacy's earnings, revenue and cash flow.

How Is Jilin Province Huinan Changlong Bio-pharmacy's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Jilin Province Huinan Changlong Bio-pharmacy'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 24% last year. EPS has also lifted 29% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 18% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Jilin Province Huinan Changlong Bio-pharmacy's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

Jilin Province Huinan Changlong Bio-pharmacy's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Jilin Province Huinan Changlong Bio-pharmacy maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Jilin Province Huinan Changlong Bio-pharmacy that you need to be mindful of.

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 low P/E).

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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.