Yangzhou Seashine New Materials Co.,Ltd. (SZSE:300885) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 18% in that time.

After such a large drop in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Yangzhou Seashine New MaterialsLtd as an attractive investment with its 18.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

As an illustration, earnings have deteriorated at Yangzhou Seashine New MaterialsLtd over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Yangzhou Seashine New MaterialsLtd

How Is Yangzhou Seashine New MaterialsLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Yangzhou Seashine New MaterialsLtd's is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 6.4%. Even so, admirably EPS has lifted 33% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 35% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Yangzhou Seashine New MaterialsLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Yangzhou Seashine New MaterialsLtd's P/E has taken a tumble along with its share price. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Yangzhou Seashine New MaterialsLtd maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Yangzhou Seashine New MaterialsLtd (1 is a bit unpleasant) you should be aware of.

Of course, you might also be able to find a better stock than Yangzhou Seashine New MaterialsLtd. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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