LEPU ScienTech Medical Technology (Shanghai) Co., Ltd. (HKG:2291) Shares Slammed 25% But Getting In Cheap Might Be Difficult Regardless

LEPU ScienTech Medical Technology (Shanghai) Co., Ltd. (HKG:2291) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

In spite of the heavy fall in price, LEPU ScienTech Medical Technology (Shanghai) may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 18.9x, since almost half of all companies in Hong Kong have P/E ratios under 10x and even P/E's lower than 6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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LEPU ScienTech Medical Technology (Shanghai) certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for LEPU ScienTech Medical Technology (Shanghai)

What Are Growth Metrics Telling Us About The High P/E?

LEPU ScienTech Medical Technology (Shanghai)'s P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 62% last year. Pleasingly, EPS has also lifted 267% in aggregate from three years ago, 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 lone analyst covering the company suggest earnings should grow by 51% over the next year. Meanwhile, the rest of the market is forecast to only expand by 18%, which is noticeably less attractive.

In light of this, it's understandable that LEPU ScienTech Medical Technology (Shanghai)'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.

What We Can Learn From LEPU ScienTech Medical Technology (Shanghai)'s P/E?

LEPU ScienTech Medical Technology (Shanghai)'s shares may have retreated, but its P/E is still flying high. 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.

As we suspected, our examination of LEPU ScienTech Medical Technology (Shanghai)'s analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for LEPU ScienTech Medical Technology (Shanghai) with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.