Shandong Yuma Sun-shading Technology Corp., Ltd. (SZSE:300993) Not Doing Enough For Some Investors As Its Shares Slump 30%

Shandong Yuma Sun-shading Technology Corp., Ltd. (SZSE:300993) shareholders that were waiting for something to happen have been dealt a blow with a 30% 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 21% in that time.

Even after such a large drop in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may still consider Shandong Yuma Sun-shading Technology as an attractive investment with its 14.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Shandong Yuma Sun-shading Technology has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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Is There Any Growth For Shandong Yuma Sun-shading Technology?

Shandong Yuma Sun-shading Technology's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. The latest three year period has also seen a 12% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the dual analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 25% per annum, which is noticeably more attractive.

With this information, we can see why Shandong Yuma Sun-shading Technology is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Shandong Yuma Sun-shading Technology's P/E?

The softening of Shandong Yuma Sun-shading Technology's shares means its P/E is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Shandong Yuma Sun-shading Technology maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Before you take the next step, you should know about the 1 warning sign for Shandong Yuma Sun-shading Technology that we have uncovered.

Of course, you might also be able to find a better stock than Shandong Yuma Sun-shading Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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