XIANGPIAOPIAO Food Co.,Ltd (SHSE:603711) shareholders that were waiting for something to happen have been dealt a blow with a 29% 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 42% in that time.
Although its price has dipped substantially, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 27x, you may still consider XIANGPIAOPIAO FoodLtd as an attractive investment with its 16.3x 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.
With its earnings growth in positive territory compared to the declining earnings of most other companies, XIANGPIAOPIAO FoodLtd has been doing quite well of late. 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.
Does Growth Match The Low P/E?
There's an inherent assumption that a company should underperform the market for P/E ratios like XIANGPIAOPIAO FoodLtd's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 204% gain to the company's bottom line. As a result, it also grew EPS by 19% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Looking ahead now, EPS is anticipated to slump, contracting by 1.8% during the coming year according to the six analysts following the company. That's not great when the rest of the market is expected to grow by 41%.
In light of this, it's understandable that XIANGPIAOPIAO FoodLtd's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What We Can Learn From XIANGPIAOPIAO FoodLtd's P/E?
XIANGPIAOPIAO FoodLtd'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.
As we suspected, our examination of XIANGPIAOPIAO FoodLtd's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Before you take the next step, you should know about the 3 warning signs for XIANGPIAOPIAO FoodLtd that we have uncovered.
Of course, you might also be able to find a better stock than XIANGPIAOPIAO FoodLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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