Biosino Bio-Technology and Science Incorporation (HKG:8247) shareholders that were waiting for something to happen have been dealt a blow with a 38% share price drop in the last month.    For any long-term shareholders, the last month ends a year to forget by locking in a 53% share price decline.  

Although its price has dipped substantially, Biosino Bio-Technology and Science Incorporation may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 24.2x, since almost half of all companies in Hong Kong have P/E ratios under 9x and even P/E's lower than 5x are not unusual.  Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.  

We'd have to say that with no tangible growth over the last year, Biosino Bio-Technology and Science Incorporation's earnings have been unimpressive.   One possibility is that the P/E is high because investors think the benign earnings growth will improve to outperform the broader market in the near future.  If not, then existing shareholders may be a little nervous about the viability of the share price.    

Check out our latest analysis for Biosino Bio-Technology and Science Incorporation

SEHK:8247 Price to Earnings Ratio vs Industry July 31st 2023

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Biosino Bio-Technology and Science Incorporation will help you shine a light on its historical performance.  

Does Growth Match The High P/E?  

The only time you'd be truly comfortable seeing a P/E as steep as Biosino Bio-Technology and Science Incorporation's is when the company's growth is on track to outshine the market decidedly.  

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before.   Likewise, not much has changed from three years ago as earnings have been stuck during that whole time.  So it seems apparent to us that the company has struggled to grow earnings meaningfully over that time.  

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably less attractive on an annualised basis.

In light of this, it's alarming that Biosino Bio-Technology and Science Incorporation's P/E sits above the majority of other companies.  It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects.  There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.  

The Key Takeaway

Biosino Bio-Technology and Science Incorporation's shares may have retreated, but its P/E is still flying high.      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.

Our examination of Biosino Bio-Technology and Science Incorporation revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations.  Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long.  Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Biosino Bio-Technology and Science Incorporation that you need to be mindful of.  

Of course, you might also be able to find a better stock than Biosino Bio-Technology and Science Incorporation. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.