The China Yongda Automobiles Services Holdings Limited (HKG:3669) share price has fared very poorly over the last month, falling by a substantial 26%. For any long-term shareholders, the last month ends a year to forget by locking in a 70% share price decline.

Although its price has dipped substantially, China Yongda Automobiles Services Holdings may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 3.3x, since almost half of all companies in Hong Kong have P/E ratios greater than 9x and even P/E's higher than 18x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times haven't been advantageous for China Yongda Automobiles Services Holdings as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for China Yongda Automobiles Services Holdings

How Is China Yongda Automobiles Services Holdings' Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like China Yongda Automobiles Services Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 39% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 7.3% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 18% per annum over the next three years. That's shaping up to be materially higher than the 15% per year growth forecast for the broader market.

With this information, we find it odd that China Yongda Automobiles Services Holdings is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From China Yongda Automobiles Services Holdings' P/E?

Shares in China Yongda Automobiles Services Holdings have plummeted and its P/E is now low enough to touch the ground. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that China Yongda Automobiles Services Holdings currently trades on a much 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 significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for China Yongda Automobiles Services Holdings that you should be aware of.

Of course, you might also be able to find a better stock than China Yongda Automobiles Services Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.