Queclink Wireless Solutions Co., Ltd. (SZSE:300590) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 17% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Queclink Wireless Solutions' P/E ratio of 33x, since the median price-to-earnings (or "P/E") ratio in China is also close to 30x. 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.

With earnings that are retreating more than the market's of late, Queclink Wireless Solutions has been very sluggish. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Queclink Wireless Solutions

Does Growth Match The P/E?

In order to justify its P/E ratio, Queclink Wireless Solutions would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 33% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 4.1% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 100% as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 42% growth forecast for the broader market.

In light of this, it's curious that Queclink Wireless Solutions' P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Queclink Wireless Solutions' P/E

Queclink Wireless Solutions' plummeting stock price has brought its P/E right back to the rest of the market. 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.

Our examination of Queclink Wireless Solutions' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Queclink Wireless Solutions is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Queclink Wireless Solutions' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.