To the annoyance of some shareholders, Shaanxi Panlong Pharmaceutical Group Limited By Share Ltd (SZSE:002864) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 22% in that time.
Even after such a large drop in price, it's still not a stretch to say that Shaanxi Panlong Pharmaceutical Group Limited By Share's price-to-earnings (or "P/E") ratio of 27.9x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 29x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
The recent earnings growth at Shaanxi Panlong Pharmaceutical Group Limited By Share would have to be considered satisfactory if not spectacular. One possibility is that the P/E is moderate because investors think this good earnings growth might only be parallel to the broader market in the near future. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.
View our latest analysis for Shaanxi Panlong Pharmaceutical Group Limited By Share
Is There Some Growth For Shaanxi Panlong Pharmaceutical Group Limited By Share?
In order to justify its P/E ratio, Shaanxi Panlong Pharmaceutical Group Limited By Share would need to produce growth that's similar to the market.
If we review the last year of earnings growth, the company posted a worthy increase of 3.1%. The latest three year period has also seen a 10% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 42% shows it's noticeably less attractive on an annualised basis.
With this information, we find it interesting that Shaanxi Panlong Pharmaceutical Group Limited By Share is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.
What We Can Learn From Shaanxi Panlong Pharmaceutical Group Limited By Share's P/E?
Following Shaanxi Panlong Pharmaceutical Group Limited By Share's share price tumble, its P/E is now hanging on to the median market P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of Shaanxi Panlong Pharmaceutical Group Limited By Share revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.
Having said that, be aware Shaanxi Panlong Pharmaceutical Group Limited By Share is showing 2 warning signs in our investment analysis, you should know about.
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.