Some Poly Plastic Masterbatch (SuZhou) Co.,Ltd (SZSE:300905) Shareholders Look For Exit As Shares Take 29% Pounding

Poly Plastic Masterbatch (SuZhou) Co.,Ltd (SZSE:300905) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 40% in the last year.

Even after such a large drop in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 34x, you may still consider Poly Plastic Masterbatch (SuZhou)Ltd as a stock to potentially avoid with its 40x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

The earnings growth achieved at Poly Plastic Masterbatch (SuZhou)Ltd over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Poly Plastic Masterbatch (SuZhou)Ltd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Poly Plastic Masterbatch (SuZhou)Ltd will help you shine a light on its historical performance.

Is There Enough Growth For Poly Plastic Masterbatch (SuZhou)Ltd?

The only time you'd be truly comfortable seeing a P/E as high as Poly Plastic Masterbatch (SuZhou)Ltd's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. Still, lamentably EPS has fallen 21% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's an unpleasant look.

With this information, we find it concerning that Poly Plastic Masterbatch (SuZhou)Ltd is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Poly Plastic Masterbatch (SuZhou)Ltd's P/E

Poly Plastic Masterbatch (SuZhou)Ltd's P/E hasn't come down all the way after its stock plunged. 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.

Our examination of Poly Plastic Masterbatch (SuZhou)Ltd revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near 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 high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 3 warning signs for Poly Plastic Masterbatch (SuZhou)Ltd (1 is a bit concerning!) that we have uncovered.

You might be able to find a better investment than Poly Plastic Masterbatch (SuZhou)Ltd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.