What You Can Learn From Yutong Heavy Industries Co.,Ltd.'s (SHSE:600817) P/E After Its 32% Share Price Crash

Yutong Heavy Industries Co.,Ltd. (SHSE:600817) shares have retraced a considerable 32% in the last month, reversing a fair amount of their solid recent performance. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

In spite of the heavy fall in price, there still wouldn't be many who think Yutong Heavy IndustriesLtd's price-to-earnings (or "P/E") ratio of 23.7x is worth a mention when the median P/E in China is similar at about 26x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times haven't been advantageous for Yutong Heavy IndustriesLtd as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Yutong Heavy IndustriesLtd

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Is There Some Growth For Yutong Heavy IndustriesLtd?

There's an inherent assumption that a company should be matching the market for P/E ratios like Yutong Heavy IndustriesLtd's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 37%. This means it has also seen a slide in earnings over the longer-term as EPS is down 43% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 18% per year during the coming three years according to the one analyst following the company. That's shaping up to be similar to the 19% each year growth forecast for the broader market.

In light of this, it's understandable that Yutong Heavy IndustriesLtd's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Yutong Heavy IndustriesLtd's P/E?

Yutong Heavy IndustriesLtd's plummeting stock price has brought its P/E right back to the rest of the market. 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 Yutong Heavy IndustriesLtd maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Yutong Heavy IndustriesLtd (2 make us uncomfortable) you should be aware of.

Of course, you might also be able to find a better stock than Yutong Heavy IndustriesLtd. 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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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.