The Perfect Group Corp., Ltd (SHSE:603059) share price has fared very poorly over the last month, falling by a substantial 27%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 30% share price drop.

After such a large drop in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 26x, you may consider Perfect Group as an attractive investment with its 15.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Perfect Group certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Perfect Group.

Is There Any Growth For Perfect Group?

In order to justify its P/E ratio, Perfect Group would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. As a result, it also grew EPS by 20% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 38% during the coming year according to the two analysts following the company. Meanwhile, the rest of the market is forecast to expand by 41%, which is not materially different.

With this information, we find it odd that Perfect Group is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

The softening of Perfect Group's shares means its P/E is now sitting at a pretty low level. 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.

We've established that Perfect Group currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Perfect Group that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.