The Market Doesn't Like What It Sees From Bichamp Cutting Technology (Hunan) Co., Ltd.'s (SZSE:002843) Earnings Yet As Shares Tumble 31%

Bichamp Cutting Technology (Hunan) Co., Ltd. (SZSE:002843) shareholders that were waiting for something to happen have been dealt a blow with a 31% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 38% in that time.

Since its price has dipped substantially, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Bichamp Cutting Technology (Hunan) as an attractive investment with its 21.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

While the market has experienced earnings growth lately, Bichamp Cutting Technology (Hunan)'s earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Bichamp Cutting Technology (Hunan)

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

The only time you'd be truly comfortable seeing a P/E as low as Bichamp Cutting Technology (Hunan)'s is when the company's growth is on track to lag the market.

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 3.1%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 175% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 20% each year as estimated by the lone analyst watching the company. With the market predicted to deliver 24% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Bichamp Cutting Technology (Hunan)'s P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Bichamp Cutting Technology (Hunan)'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.

As we suspected, our examination of Bichamp Cutting Technology (Hunan)'s analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Bichamp Cutting Technology (Hunan) that you need to be mindful of.

If you're unsure about the strength of Bichamp Cutting Technology (Hunan)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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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