The Pylon Technologies Co., Ltd. (SHSE:688063) share price has fared very poorly over the last month, falling by a substantial 30%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 75% loss during that time.

In spite of the heavy fall in price, Pylon Technologies' price-to-earnings (or "P/E") ratio of 10.1x might still make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 28x and even P/E's above 50x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been pleasing for Pylon Technologies as its earnings have risen in spite of the market's earnings going into reverse. 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.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Pylon Technologies' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 66% last year. The strong recent performance means it was also able to grow EPS by 217% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 35% over the next year. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Pylon Technologies is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Having almost fallen off a cliff, Pylon Technologies' share price has pulled its P/E way down as well. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Pylon Technologies' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 4 warning signs for Pylon Technologies you should be aware of, and 2 of them can't be ignored.

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.