Benign Growth For Arctech Solar Holding Co., Ltd. (SHSE:688408) Underpins Stock's 25% Plummet

Unfortunately for some shareholders, the Arctech Solar Holding Co., Ltd. (SHSE:688408) share price has dived 25% in the last thirty days, prolonging recent pain. Longer-term shareholders would now have taken a real hit with the stock declining 8.8% in the last year.

After such a large drop in price, Arctech Solar Holding may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.5x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 71x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Arctech Solar Holding has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Arctech Solar Holding

Keen to find out how analysts think Arctech Solar Holding's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

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

Retrospectively, the last year delivered an exceptional 173% gain to the company's bottom line. Pleasingly, EPS has also lifted 274% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 27% during the coming year according to the four analysts following the company. That's shaping up to be materially lower than the 37% growth forecast for the broader market.

With this information, we can see why Arctech Solar Holding is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Arctech Solar Holding's P/E

Having almost fallen off a cliff, Arctech Solar Holding's share price has pulled its P/E way down as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Arctech Solar Holding's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Arctech Solar Holding (including 1 which shouldn't be ignored).

If you're unsure about the strength of Arctech Solar Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.