When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Tasly Pharmaceutical Group Co., Ltd (SHSE:600535) as an attractive investment with its 25.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings that are retreating more than the market's of late, Tasly Pharmaceutical Group has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Tasly Pharmaceutical Group's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 22% 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 42% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 51% as estimated by the eight analysts watching the company. With the market only predicted to deliver 39%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Tasly Pharmaceutical Group's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Tasly Pharmaceutical Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You always need to take note of risks, for example - Tasly Pharmaceutical Group has 2 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than Tasly Pharmaceutical Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.