Suzhou Xingye Materials Technology Co.,Ltd. (SHSE:603928) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 10% share price drop.
In spite of the heavy fall in price, it's still not a stretch to say that Suzhou Xingye Materials TechnologyLtd's price-to-earnings (or "P/E") ratio of 28.8x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 30x. 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.
For instance, Suzhou Xingye Materials TechnologyLtd's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.
SHSE:603928 Price to Earnings Ratio vs Industry June 6th 2024 Although there are no analyst estimates available for Suzhou Xingye Materials TechnologyLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is Suzhou Xingye Materials TechnologyLtd's Growth Trending?
In order to justify its P/E ratio, Suzhou Xingye Materials TechnologyLtd would need to produce growth that's similar to the market.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 26%. As a result, earnings from three years ago have also fallen 36% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
In contrast to the company, the rest of the market is expected to grow by 38% over the next year, which really puts the company's recent medium-term earnings decline into perspective.
With this information, we find it concerning that Suzhou Xingye Materials TechnologyLtd is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.
The Key Takeaway
Following Suzhou Xingye Materials TechnologyLtd's share price tumble, its P/E is now hanging on to the median market P/E. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Suzhou Xingye Materials TechnologyLtd currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.
You should always think about risks. Case in point, we've spotted 3 warning signs for Suzhou Xingye Materials TechnologyLtd you should be aware of, and 1 of them is a bit concerning.
Of course, you might also be able to find a better stock than Suzhou Xingye Materials TechnologyLtd. 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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