Shanghai Sanyou Medical Co., Ltd (SHSE:688085) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 41% in the last twelve months.
After such a large jump in price, given close to half the companies in China have price-to-earnings ratios (or “P/E’s”) below 30x, you may consider Shanghai Sanyou Medical as a stock to avoid entirely with its 45.3x P/E ratio. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Shanghai Sanyou Medical has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate…
