Unfortunately for some shareholders, the OKE Precision Cutting Tools Co., Ltd. (SHSE:688308) share price has dived 29% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 64% share price decline.
In spite of the heavy fall in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider OKE Precision Cutting Tools as an attractive investment with its 14.8x P/E ratio. 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 OKE Precision Cutting Tools as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.
See our latest analysis for OKE Precision Cutting Tools
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as OKE Precision Cutting Tools' is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered a frustrating 19% 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 35% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.
Turning to the outlook, the next year should generate growth of 38% as estimated by the five analysts watching the company. With the market predicted to deliver 42% growth , the company is positioned for a comparable earnings result.
With this information, we find it odd that OKE Precision Cutting Tools is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
The Key Takeaway
OKE Precision Cutting Tools' P/E has taken a tumble along with its share price. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of OKE Precision Cutting Tools' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.
You should always think about risks. Case in point, we've spotted 3 warning signs for OKE Precision Cutting Tools you should be aware of, and 1 of them is significant.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.