The Nanjing Vishee Medical Technology Co., Ltd (SHSE:688580) share price has fared very poorly over the last month, falling by a substantial 26%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 19% in that time.
In spite of the heavy fall in price, Nanjing Vishee Medical Technology's price-to-earnings (or "P/E") ratio of 24.1x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 31x and even P/E's above 55x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Nanjing Vishee Medical Technology has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for Nanjing Vishee Medical Technology
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, Nanjing Vishee Medical Technology would need to produce sluggish growth that's trailing the market.
Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 8.4% overall from three years ago. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 36% over the next year. Meanwhile, the rest of the market is forecast to expand by 42%, which is noticeably more attractive.
With this information, we can see why Nanjing Vishee Medical Technology 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 Final Word
The softening of Nanjing Vishee Medical Technology's shares means its P/E is now sitting at a pretty low level. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
As we suspected, our examination of Nanjing Vishee Medical Technology's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.
Before you settle on your opinion, we've discovered 2 warning signs for Nanjing Vishee Medical Technology (1 doesn't sit too well with us!) 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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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.
