China Resources Boya Bio-pharmaceutical Group Co.,Ltd (SZSE:300294) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 31% share price drop.

In spite of the heavy fall in price, there still wouldn't be many who think China Resources Boya Bio-pharmaceutical GroupLtd's price-to-earnings (or "P/E") ratio of 26.2x is worth a mention when the median P/E in China is similar at about 28x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, China Resources Boya Bio-pharmaceutical GroupLtd has been doing quite well of late. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. 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 not quite in favour.

How Is China Resources Boya Bio-pharmaceutical GroupLtd's Growth Trending?

In order to justify its P/E ratio, China Resources Boya Bio-pharmaceutical GroupLtd would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 7.1% gain to the company's bottom line. The latest three year period has also seen a 20% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 22% during the coming year according to the seven analysts following the company. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

In light of this, it's curious that China Resources Boya Bio-pharmaceutical GroupLtd's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On China Resources Boya Bio-pharmaceutical GroupLtd's P/E

Following China Resources Boya Bio-pharmaceutical GroupLtd's share price tumble, its P/E is now hanging on to the median market P/E. 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 China Resources Boya Bio-pharmaceutical GroupLtd currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with China Resources Boya Bio-pharmaceutical GroupLtd, and understanding should be part of your investment process.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.