What You Can Learn From QuakeSafe Technologies Co., Ltd.'s (SZSE:300767) P/EAfter Its 26% Share Price Crash

Unfortunately for some shareholders, the QuakeSafe Technologies Co., Ltd. (SZSE:300767) share price has dived 26% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 77% share price decline.

Even after such a large drop in price, QuakeSafe Technologies' price-to-earnings (or "P/E") ratio of 62.8x might still make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

QuakeSafe Technologies hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for QuakeSafe Technologies

Want the full picture on analyst estimates for the company? Then our free report on QuakeSafe Technologies will help you uncover what's on the horizon.

How Is QuakeSafe Technologies' Growth Trending?

In order to justify its P/E ratio, QuakeSafe Technologies would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 57% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 78% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 251% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 36% growth forecast for the broader market.

With this information, we can see why QuakeSafe Technologies is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From QuakeSafe Technologies' P/E?

QuakeSafe Technologies' shares may have retreated, but its P/E is still flying high. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that QuakeSafe Technologies maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - QuakeSafe Technologies has 3 warning signs we think you should be aware of.

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.