Henan Hengxing Science & Technology Co.,Ltd. (SZSE:002132) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 54% loss during that time.

Even after such a large drop in price, there still wouldn't be many who think Henan Hengxing Science & TechnologyLtd's price-to-earnings (or "P/E") ratio of 26.8x is worth a mention when the median P/E in China is similar at about 26x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

For instance, Henan Hengxing Science & 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.

How Is Henan Hengxing Science & TechnologyLtd's Growth Trending?

Henan Hengxing Science & TechnologyLtd's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 65% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Henan Hengxing Science & TechnologyLtd's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

What We Can Learn From Henan Hengxing Science & TechnologyLtd's P/E?

Following Henan Hengxing Science & TechnologyLtd's share price tumble, its P/E is now hanging on to the median market P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Henan Hengxing Science & TechnologyLtd revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 4 warning signs for Henan Hengxing Science & TechnologyLtd (1 doesn't sit too well with us!) that we have uncovered.

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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