Hainan Haide Capital Management Co., Ltd. (SZSE:000567) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 14% share price drop.
In spite of the heavy fall in price, Hainan Haide Capital Management may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.8x, since almost half of all companies in China have P/E ratios greater than 33x and even P/E's higher than 63x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
Recent times haven't been advantageous for Hainan Haide Capital Management as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. 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.
Keen to find out how analysts think Hainan Haide Capital Management's future stacks up against the industry? In that case, our free report is a great place to start.
Does Growth Match The Low P/E?
In order to justify its P/E ratio, Hainan Haide Capital Management would need to produce sluggish growth that's trailing the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 32%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 158% 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.
Turning to the outlook, the next year should generate growth of 103% as estimated by the lone analyst watching the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.
With this information, we find it odd that Hainan Haide Capital Management is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Bottom Line On Hainan Haide Capital Management's P/E
The softening of Hainan Haide Capital Management's shares means its P/E is now sitting at a pretty low level. 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 Hainan Haide Capital Management currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
Before you settle on your opinion, we've discovered 1 warning sign for Hainan Haide Capital Management that you should be aware of.
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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