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Those holding China Resources Medical Holdings (HKG:1515) shares must be pleased that the share price has rebounded 33% in the last thirty days. But unfortunately, the stock is still down by 11% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 29% in the last year.
Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
View our latest analysis for China Resources Medical Holdings
How Does China Resources Medical Holdings's P/E Ratio Compare To Its Peers?
China Resources Medical Holdings's P/E is 12.55. As you can see below China Resources Medical Holdings has a P/E ratio that is fairly close for the average for the healthcare industry, which is 12.6.
That indicates that the market expects China Resources Medical Holdings will perform roughly in line with other companies in its industry. The company could surprise by performing better than average, in the future. Further research into factors such as insider buying and selling, could help you form your own view on whether that is likely.
How Growth Rates Impact P/E Ratios
Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. Earnings growth means that in the future the 'E' will be higher. That means even if the current P/E is high, it will reduce over time if the share price stays flat. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.
China Resources Medical Holdings's earnings per share fell by 8.3% in the last twelve months. But EPS is up 2.4% over the last 5 years.
Remember: P/E Ratios Don't Consider The Balance Sheet
The 'Price' in P/E reflects the market capitalization of the company. In other words, it does not consider any debt or cash that the company may have on the balance sheet. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.