Zhejiang Wolwo Bio-Pharmaceutical Co., Ltd. (SZSE:300357) shares have had a really impressive month, gaining 39% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 18% over that time.

Since its price has surged higher, Zhejiang Wolwo Bio-Pharmaceutical may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 41x, since almost half of all companies in China have P/E ratios under 29x and even P/E's lower than 18x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

The recently shrinking earnings for Zhejiang Wolwo Bio-Pharmaceutical have been in line with the market. It might be that many expect the company's earnings to strengthen positively despite the tough market conditions, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Enough Growth For Zhejiang Wolwo Bio-Pharmaceutical?

In order to justify its P/E ratio, Zhejiang Wolwo Bio-Pharmaceutical would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 1.7% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 2.5% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 23% per year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 19% each year, which is noticeably less attractive.

In light of this, it's understandable that Zhejiang Wolwo Bio-Pharmaceutical'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 Bottom Line On Zhejiang Wolwo Bio-Pharmaceutical's P/E

Zhejiang Wolwo Bio-Pharmaceutical shares have received a push in the right direction, but its P/E is elevated too. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Zhejiang Wolwo Bio-Pharmaceutical maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Zhejiang Wolwo Bio-Pharmaceutical.

If these risks are making you reconsider your opinion on Zhejiang Wolwo Bio-Pharmaceutical, explore our interactive list of high quality stocks to get an idea of what else is out there.

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