Market Cool On Cre8 Direct (NingBo) Co., Ltd.'s (SZSE:300703) Earnings Pushing Shares 32% Lower

Cre8 Direct (NingBo) Co., Ltd. (SZSE:300703) shares have retraced a considerable 32% in the last month, reversing a fair amount of their solid recent performance. Longer-term, the stock has been solid despite a difficult 30 days, gaining 21% in the last year.

In spite of the heavy fall in price, there still wouldn't be many who think Cre8 Direct (NingBo)'s price-to-earnings (or "P/E") ratio of 34.5x is worth a mention when the median P/E in China is similar at about 33x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Cre8 Direct (NingBo) certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. 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 not quite in favour.

Check out our latest analysis for Cre8 Direct (NingBo)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cre8 Direct (NingBo).

How Is Cre8 Direct (NingBo)'s Growth Trending?

In order to justify its P/E ratio, Cre8 Direct (NingBo) would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 34% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 192% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 68% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 38% growth forecast for the broader market.

In light of this, it's curious that Cre8 Direct (NingBo)'s P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Cre8 Direct (NingBo)'s P/E

Cre8 Direct (NingBo)'s plummeting stock price has brought its P/E right back to the rest of the market. 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 Cre8 Direct (NingBo) currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for Cre8 Direct (NingBo) you should be aware of, and 1 of them is concerning.

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.