Ever Reach Group (Holdings) Company Limited (HKG:3616) shareholders that were waiting for something to happen have been dealt a blow with a 27% 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 46% share price drop.
Following the heavy fall in price, Ever Reach Group (Holdings)'s price-to-earnings (or "P/E") ratio of 2.5x might make it look like a strong buy right now compared to the market in Hong Kong , where around half of the companies have P/E ratios above 9x and even P/E's above 19x 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 so limited.
The earnings growth achieved at Ever Reach Group (Holdings) over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, 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 Ever Reach Group (Holdings)SEHK:3616 Price Based on Past Earnings May 13th 2022 Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Ever Reach Group (Holdings) will help you shine a light on its historical performance.
Is There Any Growth For Ever Reach Group (Holdings)?
In order to justify its P/E ratio, Ever Reach Group (Holdings) would need to produce anemic growth that's substantially trailing the market.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.1% last year. The solid recent performance means it was also able to grow EPS by 7.1% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Comparing that to the market, which is predicted to deliver 17% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.
In light of this, it's understandable that Ever Reach Group (Holdings)'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 Bottom Line On Ever Reach Group (Holdings)'s P/E
Shares in Ever Reach Group (Holdings) have plummeted and its P/E is now low enough to touch the ground. 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 Ever Reach Group (Holdings) revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider and we've discovered 3 warning signs for Ever Reach Group (Holdings) (1 is potentially serious!) that you should be aware of before investing here.
If you're unsure about the strength of Ever Reach Group (Holdings)'s 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.