A-Living Smart City Services Co., Ltd. (HKG:3319) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 67% loss during that time.

In spite of the heavy fall in price, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 10x, you may still consider A-Living Smart City Services as a highly attractive investment with its 2.6x P/E ratio. 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.

A-Living Smart City Services has been struggling lately as its earnings have declined faster 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.

View our latest analysis for A-Living Smart City Services

Is There Any Growth For A-Living Smart City Services?

A-Living Smart City Services' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than 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 27%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 5.1% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 7.4% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 16% per annum, which is noticeably more attractive.

With this information, we can see why A-Living Smart City Services is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On A-Living Smart City Services' P/E

A-Living Smart City Services' P/E looks about as weak as its stock price lately. 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.

We've established that A-Living Smart City Services maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for A-Living Smart City Services you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.