Shanghai Serum Bio-Technology Co., Ltd. (SHSE:688163) shares have continued their recent momentum with a 44% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 13% is also fairly reasonable.
Following the firm bounce in price, given close to half the companies in China have price-to-earnings ratios (or “P/E’s”) below 33x, you may consider Shanghai Serum Bio-Technology as a stock to avoid entirely with its 53.6x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it’s justified.
As an illustration, earnings have deteriorated at Shanghai Serum Bio-Technology over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite…
