Zhejiang Crystal-Optech Co., Ltd (SZSE:002273) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 24% in that time.
After such a large drop in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Zhejiang Crystal-Optech as an attractive investment with its 25.2x 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.
Zhejiang Crystal-Optech has been struggling lately as its earnings have declined faster 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. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
Check out our latest analysis for Zhejiang Crystal-Optech
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, Zhejiang Crystal-Optech would need to produce sluggish growth that's trailing the market.
Retrospectively, the last year delivered a frustrating 7.5% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 41% during the coming year according to the eight analysts following 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 Zhejiang Crystal-Optech 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 Final Word
Zhejiang Crystal-Optech'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 Zhejiang Crystal-Optech currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.
Having said that, be aware Zhejiang Crystal-Optech is showing 4 warning signs in our investment analysis, you should know about.
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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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.