Unfortunately for some shareholders, the Chengdu KSW Technologies Co.,Ltd. (SHSE:688283) share price has dived 25% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 53% share price decline.
Although its price has dipped substantially, it's still not a stretch to say that Chengdu KSW TechnologiesLtd's price-to-earnings (or "P/E") ratio of 30.4x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 29x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Chengdu KSW TechnologiesLtd's earnings growth of late has been pretty similar to most other companies. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.
How Is Chengdu KSW TechnologiesLtd's Growth Trending?
There's an inherent assumption that a company should be matching the market for P/E ratios like Chengdu KSW TechnologiesLtd's to be considered reasonable.
Retrospectively, the last year delivered a decent 3.0% gain to the company's bottom line. Pleasingly, EPS has also lifted 46% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Turning to the outlook, the next year should generate growth of 58% as estimated by the dual analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 36%, which is noticeably less attractive.
With this information, we find it interesting that Chengdu KSW TechnologiesLtd is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.
The Key Takeaway
Following Chengdu KSW TechnologiesLtd's share price tumble, its P/E is now hanging on to the median market P/E. 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 Chengdu KSW TechnologiesLtd currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market 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.
Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Chengdu KSW TechnologiesLtd with six simple checks will allow you to discover any risks that could be an issue.
You might be able to find a better investment than Chengdu KSW TechnologiesLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.