The Zhejiang Xidamen New Material Co.,Ltd. (SHSE:605155) share price has fared very poorly over the last month, falling by a substantial 25%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 19% in that time.
Even after such a large drop in price, Zhejiang Xidamen New MaterialLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.6x, since almost half of all companies in China have P/E ratios greater than 27x and even P/E's higher than 48x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Zhejiang Xidamen New MaterialLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
How Is Zhejiang Xidamen New MaterialLtd's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as Zhejiang Xidamen New MaterialLtd's is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 9.0% last year. Still, lamentably EPS has fallen 16% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Turning to the outlook, the next year should generate growth of 45% as estimated by the one analyst watching the company. With the market predicted to deliver 42% growth , the company is positioned for a comparable earnings result.
In light of this, it's peculiar that Zhejiang Xidamen New MaterialLtd's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.
The Bottom Line On Zhejiang Xidamen New MaterialLtd's P/E
The softening of Zhejiang Xidamen New MaterialLtd's shares means its P/E is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of Zhejiang Xidamen New MaterialLtd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
Before you take the next step, you should know about the 1 warning sign for Zhejiang Xidamen New MaterialLtd that we have uncovered.
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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