Lacklustre Performance Is Driving ECS Botanics Holdings Ltd's (ASX:ECS) 26% Price Drop

ECS Botanics Holdings Ltd (ASX:ECS) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 39% share price drop.

After such a large drop in price, given about half the companies in Australia have price-to-earnings ratios (or "P/E's") above 20x, you may consider ECS Botanics Holdings as a highly attractive investment with its 9.4x 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 so limited.

Recent times have been quite advantageous for ECS Botanics Holdings as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for ECS Botanics Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ECS Botanics Holdings will help you shine a light on its historical performance.

Is There Any Growth For ECS Botanics Holdings?

The only time you'd be truly comfortable seeing a P/E as depressed as ECS Botanics Holdings' is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 270% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that ECS Botanics Holdings' 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 Final Word

Having almost fallen off a cliff, ECS Botanics Holdings' share price has pulled its P/E way down as well. 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.

We've established that ECS Botanics Holdings maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. 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.

Plus, you should also learn about these 4 warning signs we've spotted with ECS Botanics Holdings (including 1 which makes us a bit uncomfortable).

You might be able to find a better investment than ECS Botanics Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.