Jianfan Biotech, the leading pharmaceutical company, suffered a sharp decline. The main reason for the sharp decline was that its valuation was too high. The net profit was 600 million, but the price-to-earnings ratio was as high as 64 times. This was the main reason for the sharp decline.
There is a reason for any stock to fall, especially if it falls sharply in the short term, some foresighted people must have discovered the problem. The main reason for the fall of stocks is that the valuation is too high. As long as the valuation is too high, the stock will be completely A big drop is possible because the most important thing in investing is to determine whether a stock is overvalued. As a high-quality medical stock, the fundamentals of Jianfan Biotechnology are indeed very good. The epidemic has caused a large-scale rise in pharmaceutical stocks. Such rises have shown irrational behavior. When the valuation has reached a level that no one can accept, the decline is also extremely normal.
1. The main reason for the sharp decline of Jianfan Biotechnology is that the valuation is too high.
We can look at the fundamentals of Jianfan Biotech. The total market value is 54.2 billion, net profit is 627 million, and the price-earnings ratio is 64 times. Under normal circumstances, the pharmaceutical stock market has been overvalued with a earnings ratio of more than 30 times. The price-to-earnings ratio of Fan Biotech has reached 64 times, which is twice as high as the entire industry. It is obvious that it has been overvalued, and it is reasonable for the market to be unfavorable.
2. Performance did not meet expectations.
Jianfan Biotech’s main business income is in China. The income brought by the epidemic is lower than everyone’s expectations. It is very important for the stock to rise. The epidemic in China has basically been controlled, which means that there is no money to speculate on the epidemic. To continue to do more momentum, everyone knows that for stocks to rise, performance needs to be driven. Because the epidemic hype has ended, valuations are relatively high, and funds are unwilling to participate, a decline will become inevitable. After all, performance is the driving force for stock rises.
3. Some media are smearing Jianfan Biotechnology.
Jianfan Biotech's sharp fall caused the self-media to question the effectiveness of treating critically ill patients with COVID-19, which made many people panic. Stocks are often full of irrationality. Someone breaking the news must mean that someone is not optimistic about it. This allows investors who do not know the truth to choose to sell their stocks as soon as possible to avoid risks, which is also the main reason for Jianfan Biotech's plunge.