The Nanjing Railway New Technology Co.,Ltd. (SZSE:301016) share price has fared very poorly over the last month, falling by a substantial 28%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 22% share price drop.

Although its price has dipped substantially, there still wouldn't be many who think Nanjing Railway New TechnologyLtd's price-to-earnings (or "P/E") ratio of 30.2x is worth a mention when the median P/E in China is similar at about 29x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For instance, Nanjing Railway New TechnologyLtd's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Nanjing Railway New TechnologyLtd

How Is Nanjing Railway New TechnologyLtd's Growth Trending?

In order to justify its P/E ratio, Nanjing Railway New TechnologyLtd would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 24% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 54% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 42% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's somewhat alarming that Nanjing Railway New TechnologyLtd's P/E sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

Nanjing Railway New TechnologyLtd's plummeting stock price has brought its P/E right back to the rest of the market. 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.

Our examination of Nanjing Railway New TechnologyLtd revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Nanjing Railway New TechnologyLtd (including 1 which 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.