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Quanzhou Huixin Micro-credit Co., Ltd. (HKG:1577) May Have Run Too Fast Too Soon With Recent 33% Price Plummet

Simply Wall St ·  05/24 06:56

Unfortunately for some shareholders, the Quanzhou Huixin Micro-credit Co., Ltd. (HKG:1577) share price has dived 33% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 52% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Quanzhou Huixin Micro-credit's P/E ratio of 7.4x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

We'd have to say that with no tangible growth over the last year, Quanzhou Huixin Micro-credit's earnings have been unimpressive. It might be that many expect the uninspiring earnings performance to only match most other companies at best over the coming period, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Quanzhou Huixin Micro-credit

SEHK:1577 Price Based on Past Earnings May 23rd 2022 Although there are no analyst estimates available for Quanzhou Huixin Micro-credit, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Growth For Quanzhou Huixin Micro-credit?

There's an inherent assumption that a company should be matching the market for P/E ratios like Quanzhou Huixin Micro-credit's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. This isn't what shareholders were looking for as it means they've been left with a 52% decline in EPS over the last three years in total. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 17% shows it's an unpleasant look.

With this information, we find it concerning that Quanzhou Huixin Micro-credit is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Quanzhou Huixin Micro-credit's P/E

With its share price falling into a hole, the P/E for Quanzhou Huixin Micro-credit looks quite average now. 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.

We've established that Quanzhou Huixin Micro-credit currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 6 warning signs for Quanzhou Huixin Micro-credit (1 is concerning) you should be aware of.

Of course, you might also be able to find a better stock than Quanzhou Huixin Micro-credit. 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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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.

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