Jiangsu Sinopep-Allsino Biopharmaceutical Co., Ltd. (SHSE:688076) shareholders have had their patience rewarded with a 29% share price jump in the last month. The last month tops off a massive increase of 103% in the last year.

Following the firm bounce in price, Jiangsu Sinopep-Allsino Biopharmaceutical's price-to-earnings (or "P/E") ratio of 78.7x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 17x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Jiangsu Sinopep-Allsino Biopharmaceutical certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

The only time you'd be truly comfortable seeing a P/E as steep as Jiangsu Sinopep-Allsino Biopharmaceutical's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 54% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 7.7% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 35% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 25% per year, which is noticeably less attractive.

In light of this, it's understandable that Jiangsu Sinopep-Allsino Biopharmaceutical's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Jiangsu Sinopep-Allsino Biopharmaceutical have built up some good momentum lately, which has really inflated its P/E. 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 Jiangsu Sinopep-Allsino Biopharmaceutical maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Jiangsu Sinopep-Allsino Biopharmaceutical that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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