Not Many Are Piling Into Jiangsu Hanvo Safety Product Co., Ltd. (SZSE:300952) Stock Yet As It Plummets 27%

Jiangsu Hanvo Safety Product Co., Ltd. (SZSE:300952) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Longer-term shareholders would now have taken a real hit with the stock declining 6.8% in the last year.

Following the heavy fall in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Jiangsu Hanvo Safety Product as an attractive investment with its 27.7x 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.

Recent times haven't been advantageous for Jiangsu Hanvo Safety Product as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Jiangsu Hanvo Safety Product

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Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Jiangsu Hanvo Safety Product'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 6.1%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 37% over the next year. That's shaping up to be similar to the 38% growth forecast for the broader market.

In light of this, it's peculiar that Jiangsu Hanvo Safety Product's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

Jiangsu Hanvo Safety Product's recently weak share price has pulled its P/E below most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Jiangsu Hanvo Safety Product's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 3 warning signs for Jiangsu Hanvo Safety Product (1 makes us a bit uncomfortable!) that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.