Zhongtong Bus Holding Co.,LTD (SZSE:000957) Shares May Have Slumped 25% But Getting In Cheap Is Still Unlikely

Zhongtong Bus Holding Co.,LTD (SZSE:000957) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 14% share price drop.

In spite of the heavy fall in price, Zhongtong Bus HoldingLTD's price-to-earnings (or "P/E") ratio of 42.7x might still make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 27x and even P/E's below 16x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

It looks like earnings growth has deserted Zhongtong Bus HoldingLTD recently, which is not something to boast about. It might be that many are expecting an improvement to the uninspiring earnings performance over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Zhongtong Bus HoldingLTD

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Zhongtong Bus HoldingLTD's earnings, revenue and cash flow.

How Is Zhongtong Bus HoldingLTD's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Zhongtong Bus HoldingLTD's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. That's essentially a continuation of what we've seen over the last three years, as its EPS growth has been virtually non-existent for that entire period. So it seems apparent to us that the company has struggled to grow earnings meaningfully over that time.

This is in contrast to the rest of the market, which is expected to grow by 38% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Zhongtong Bus HoldingLTD's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Zhongtong Bus HoldingLTD's P/E?

Even after such a strong price drop, Zhongtong Bus HoldingLTD's P/E still exceeds the rest of the market significantly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Zhongtong Bus HoldingLTD currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Zhongtong Bus HoldingLTD that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.