Add New Energy Investment Holdings Group Limited (HKG:2623) shares have had a really impressive month, gaining 128% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.
Even after such a large jump in price, Add New Energy Investment Holdings Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.3x, since almost half of all companies in Hong Kong have P/E ratios greater than 10x and even P/E's higher than 19x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
As an illustration, earnings have deteriorated at Add New Energy Investment Holdings Group over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
Although there are no analyst estimates available for Add New Energy Investment Holdings Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Does Growth Match The Low P/E?
In order to justify its P/E ratio, Add New Energy Investment Holdings Group 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 25%. This means it has also seen a slide in earnings over the longer-term as EPS is down 36% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 21% shows it's an unpleasant look.
With this information, we are not surprised that Add New Energy Investment Holdings Group is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.
What We Can Learn From Add New Energy Investment Holdings Group's P/E?
The latest share price surge wasn't enough to lift Add New Energy Investment Holdings Group's P/E close to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Add New Energy Investment Holdings Group revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Add New Energy Investment Holdings Group (1 is potentially serious) you should be aware of.
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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正如我們所懷疑的那樣,我們對Add New Energy Investment Holdings集團的審查顯示,鑑於市場將增長,其中期收益的萎縮是其市盈率低的原因。目前,股東們正在接受低市盈率,因爲他們承認未來的收益可能不會帶來任何驚喜。除非最近的中期狀況有所改善,否則它們將繼續構成股價在這些水平附近的障礙。
別忘了可能還有其他風險。例如,我們已經確定了Add New Energy Investment Holdings Group的3個警告信號(其中一個可能很嚴重),你應該注意。