Tianjin Ringpu Bio-Technology Co.,Ltd.'s (SZSE:300119) price-to-earnings (or "P/E") ratio of 18x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 35x and even P/E's above 63x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Tianjin Ringpu Bio-TechnologyLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for Tianjin Ringpu Bio-TechnologyLtd
Does Growth Match The Low P/E?
Tianjin Ringpu Bio-TechnologyLtd'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 6.6%. EPS has also lifted 9.8% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Turning to the outlook, the next year should generate growth of 34% as estimated by the nine analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 43%, which is noticeably more attractive.
In light of this, it's understandable that Tianjin Ringpu Bio-TechnologyLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Tianjin Ringpu Bio-TechnologyLtd's 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 Tianjin Ringpu Bio-TechnologyLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
Plus, you should also learn about these 2 warning signs we've spotted with Tianjin Ringpu Bio-TechnologyLtd.
Of course, you might also be able to find a better stock than Tianjin Ringpu Bio-TechnologyLtd. 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.