Earnings Working Against Canmax Technologies Co., Ltd.'s (SZSE:300390) Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may consider Canmax Technologies Co., Ltd. (SZSE:300390) as a highly attractive investment with its 5.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

While the market has experienced earnings growth lately, Canmax Technologies' earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Canmax Technologies

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Canmax Technologies.

Is There Any Growth For Canmax Technologies?

The only time you'd be truly comfortable seeing a P/E as depressed as Canmax Technologies' is when the company's growth is on track to lag the market decidedly.

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 45%. Still, the latest three year period has seen an excellent 1,055% overall rise in EPS, in spite of its unsatisfying short-term performance. 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.

Looking ahead now, EPS is anticipated to slump, contracting by 66% during the coming year according to the one analyst following the company. That's not great when the rest of the market is expected to grow by 36%.

With this information, we are not surprised that Canmax Technologies is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Canmax Technologies' analyst forecasts revealed that its outlook for shrinking earnings 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.

It is also worth noting that we have found 4 warning signs for Canmax Technologies (2 can't be ignored!) that you need to take into consideration.

If you're unsure about the strength of Canmax Technologies' 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.