Some Henan Jindan Lactic Acid Technology Co.,Ltd. (SZSE:300829) Shareholders Look For Exit As Shares Take 26% Pounding

The Henan Jindan Lactic Acid Technology Co.,Ltd. (SZSE:300829) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 27% share price drop.

In spite of the heavy fall in price, there still wouldn't be many who think Henan Jindan Lactic Acid TechnologyLtd's price-to-earnings (or "P/E") ratio of 32.8x is worth a mention when the median P/E in China is similar at about 31x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

As an illustration, earnings have deteriorated at Henan Jindan Lactic Acid TechnologyLtd over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Henan Jindan Lactic Acid TechnologyLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Henan Jindan Lactic Acid TechnologyLtd will help you shine a light on its historical performance.

Is There Some Growth For Henan Jindan Lactic Acid TechnologyLtd?

There's an inherent assumption that a company should be matching the market for P/E ratios like Henan Jindan Lactic Acid TechnologyLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 26% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 38% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Henan Jindan Lactic Acid TechnologyLtd is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

With its share price falling into a hole, the P/E for Henan Jindan Lactic Acid TechnologyLtd looks quite average now. 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.

Our examination of Henan Jindan Lactic Acid TechnologyLtd revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 4 warning signs for Henan Jindan Lactic Acid TechnologyLtd (2 make us uncomfortable!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Henan Jindan Lactic Acid TechnologyLtd. 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.