Earnings Working Against Fujian Yongan Forestry(Group)Joint-Stock Co.,Ltd.'s (SZSE:000663) Share Price Following 25% Dive

To the annoyance of some shareholders, Fujian Yongan Forestry(Group)Joint-Stock Co.,Ltd. (SZSE:000663) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 59% loss during that time.

Even after such a large drop in price, Fujian Yongan Forestry(Group)Ltd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.5x, since almost half of all companies in China have P/E ratios greater than 31x and even P/E's higher than 57x 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 so limited.

For example, consider that Fujian Yongan Forestry(Group)Ltd's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Fujian Yongan Forestry(Group)Ltd

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 Fujian Yongan Forestry(Group)Ltd's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Fujian Yongan Forestry(Group)Ltd would need to produce anemic growth that's substantially trailing 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 60%. Still, the latest three year period has seen an excellent 91% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Fujian Yongan Forestry(Group)Ltd is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Fujian Yongan Forestry(Group)Ltd's P/E?

Having almost fallen off a cliff, Fujian Yongan Forestry(Group)Ltd's share price has pulled its P/E way down as well. 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 Fujian Yongan Forestry(Group)Ltd maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Fujian Yongan Forestry(Group)Ltd is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

If you're unsure about the strength of Fujian Yongan Forestry(Group)Ltd'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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