The Profit Cultural and Creative Group Co., Ltd. (SZSE:300640) share price has fared very poorly over the last month, falling by a substantial 26%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 22% share price drop.
Even after such a large drop in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 27x, you may still consider Profit Cultural and Creative Group as a stock to avoid entirely with its 52.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
For example, consider that Profit Cultural and Creative Group's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Profit Cultural and Creative Group's earnings, revenue and cash flow.
Does Growth Match The High P/E?
The only time you'd be truly comfortable seeing a P/E as steep as Profit Cultural and Creative Group's is when the company's growth is on track to outshine the market decidedly.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 40%. The last three years don't look nice either as the company has shrunk EPS by 38% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 42% shows it's an unpleasant look.
In light of this, it's alarming that Profit Cultural and Creative Group's P/E sits above 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. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.
The Key Takeaway
A significant share price dive has done very little to deflate Profit Cultural and Creative Group's very lofty 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.
Our examination of Profit Cultural and Creative Group revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Profit Cultural and Creative Group that 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.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
有鑑於此,令人震驚的是,Profit Cultural and Creative Group的市盈率高於其他大多數公司。看來大多數投資者都忽視了最近的糟糕增長率,並希望公司的業務前景有所好轉。只有最大膽的人才會假設這些價格是可持續的,因爲近期盈利趨勢的延續最終可能會嚴重壓制股價。
關鍵要點
股價的大幅下跌並沒有降低Profit Cultural and Creative Group非常高的市盈率。通常,我們傾向於限制使用市盈率來確定市場對公司整體健康狀況的看法。
我們對Profit Cultural and Creative Group的調查顯示,鑑於市場即將增長,其中期收益萎縮對其高市盈率的影響沒有我們預期的那麼大。目前,我們對高市盈率越來越不滿意,因爲這種收益表現極不可能長期支撐這種積極情緒。如果最近的中期收益趨勢繼續下去,這將使股東的投資面臨重大風險,潛在投資者面臨支付過高溢價的危險。
別忘了可能還有其他風險。例如,我們已經爲Profit Cultural and Creative Group確定了兩個警告信號,你應該注意這些信號。