Sino-Agri Leading Biosciences Co.,Ltd (SHSE:603970) shares have had a really impressive month, gaining 29% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.5% in the last twelve months.
Although its price has surged higher, Sino-Agri Leading BiosciencesLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 23.6x, 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Sino-Agri Leading BiosciencesLtd has been doing quite well of late. 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.
View our latest analysis for Sino-Agri Leading BiosciencesLtd
How Is Sino-Agri Leading BiosciencesLtd's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as Sino-Agri Leading BiosciencesLtd's is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered a decent 10% gain to the company's bottom line. Pleasingly, EPS has also lifted 72% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 26% over the next year. Meanwhile, the rest of the market is forecast to expand by 42%, which is noticeably more attractive.
With this information, we can see why Sino-Agri Leading BiosciencesLtd 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 Bottom Line On Sino-Agri Leading BiosciencesLtd's P/E
Sino-Agri Leading BiosciencesLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Sino-Agri Leading BiosciencesLtd 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 need to take note of risks, for example - Sino-Agri Leading BiosciencesLtd has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
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.
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.