Consun Pharmaceutical Group Limited (HKG:1681) shareholders have had their patience rewarded with a 32% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 53% in the last year.
In spite of the firm bounce in price, Consun Pharmaceutical Group's price-to-earnings (or "P/E") ratio of 6.7x might still make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 10x and even P/E's above 20x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Recent times have been advantageous for Consun Pharmaceutical Group as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.
Check out our latest analysis for Consun Pharmaceutical Group
What Are Growth Metrics Telling Us About The Low P/E?
Consun Pharmaceutical Group's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
If we review the last year of earnings growth, the company posted a worthy increase of 13%. Pleasingly, EPS has also lifted 51% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 12% each year over the next three years. With the market predicted to deliver 12% growth per year, the company is positioned for a comparable earnings result.
With this information, we find it odd that Consun Pharmaceutical Group is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.
What We Can Learn From Consun Pharmaceutical Group's P/E?
The latest share price surge wasn't enough to lift Consun Pharmaceutical Group's P/E close to the market median. 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 Consun Pharmaceutical Group currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.
Having said that, be aware Consun Pharmaceutical Group is showing 2 warning signs in our investment analysis, 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.
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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.