China Resources Double-Crane Pharmaceutical Co.,Ltd. (SHSE:600062) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 16% is also fairly reasonable.

Although its price has surged higher, China Resources Double-Crane PharmaceuticalLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.3x, since almost half of all companies in China have P/E ratios greater than 31x and even P/E's higher than 56x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

China Resources Double-Crane PharmaceuticalLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.

How Is China Resources Double-Crane PharmaceuticalLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as China Resources Double-Crane PharmaceuticalLtd'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 23% last year. EPS has also lifted 25% 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.

Turning to the outlook, the next year should generate growth of 18% as estimated by the three analysts watching the company. With the market predicted to deliver 42% growth , the company is positioned for a weaker earnings result.

With this information, we can see why China Resources Double-Crane PharmaceuticalLtd is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

China Resources Double-Crane PharmaceuticalLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 China Resources Double-Crane PharmaceuticalLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for China Resources Double-Crane PharmaceuticalLtd you should be aware of.

If these risks are making you reconsider your opinion on China Resources Double-Crane PharmaceuticalLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.