Jin Yang Pharmaceutical Co., Ltd. (KOSDAQ:007370) Shares Fly 32% But Investors Aren't Buying For Growth

Despite an already strong run, Jin Yang Pharmaceutical Co., Ltd. (KOSDAQ:007370) shares have been powering on, with a gain of 32% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 22% is also fairly reasonable.

Even after such a large jump in price, Jin Yang Pharmaceutical may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.8x, since almost half of all companies in Korea have P/E ratios greater than 12x and even P/E's higher than 24x 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.

For instance, Jin Yang Pharmaceutical's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Jin Yang Pharmaceutical

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jin Yang Pharmaceutical will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Jin Yang Pharmaceutical's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 62% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 31% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Jin Yang Pharmaceutical's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Jin Yang Pharmaceutical's P/E

Despite Jin Yang Pharmaceutical's shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of Jin Yang Pharmaceutical revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Jin Yang Pharmaceutical has 5 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than Jin Yang Pharmaceutical. So you may wish to see this free collection of other companies that have reasonable P/E ratios 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.