Positive Sentiment Still Eludes Guangdong KinLong Hardware Products Co.,Ltd. (SZSE:002791) Following 35% Share Price Slump

Guangdong KinLong Hardware Products Co.,Ltd. (SZSE:002791) shareholders that were waiting for something to happen have been dealt a blow with a 35% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 54% share price decline.

In spite of the heavy fall in price, Guangdong KinLong Hardware ProductsLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.1x, since almost half of all companies in China have P/E ratios greater than 29x and even P/E's higher than 54x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Guangdong KinLong Hardware ProductsLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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.

View our latest analysis for Guangdong KinLong Hardware ProductsLtd

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How Is Guangdong KinLong Hardware ProductsLtd's Growth Trending?

In order to justify its P/E ratio, Guangdong KinLong Hardware ProductsLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 248% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 59% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 30% each year over the next three years. That's shaping up to be materially higher than the 25% each year growth forecast for the broader market.

In light of this, it's peculiar that Guangdong KinLong Hardware ProductsLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Guangdong KinLong Hardware ProductsLtd's P/E

Guangdong KinLong Hardware ProductsLtd's P/E has taken a tumble along with its share price. 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 Guangdong KinLong Hardware ProductsLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Guangdong KinLong Hardware ProductsLtd with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Guangdong KinLong Hardware ProductsLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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