DuZhe Publish&Media Co.,Ltd (SHSE:603999) Shares May Have Slumped 30% But Getting In Cheap Is Still Unlikely

DuZhe Publish&Media Co.,Ltd (SHSE:603999) shareholders won't be pleased to see that the share price has had a very rough month, dropping 30% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 16% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about DuZhe Publish&MediaLtd's P/E ratio of 31.5x, since the median price-to-earnings (or "P/E") ratio in China is also close to 33x. 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.

The earnings growth achieved at DuZhe Publish&MediaLtd over the last year would be more than acceptable for most companies. One possibility is that the P/E is moderate because investors think this respectable earnings growth might not be enough to outperform the broader market in the near future. 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 DuZhe Publish&MediaLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on DuZhe Publish&MediaLtd will help you shine a light on its historical performance.

How Is DuZhe Publish&MediaLtd's Growth Trending?

In order to justify its P/E ratio, DuZhe Publish&MediaLtd would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 8.7% gain to the company's bottom line. EPS has also lifted 22% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

This is in contrast to the rest of the market, which is expected to grow by 38% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that DuZhe Publish&MediaLtd's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From DuZhe Publish&MediaLtd's P/E?

Following DuZhe Publish&MediaLtd's share price tumble, its P/E is now hanging on to the median market P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that DuZhe Publish&MediaLtd currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for DuZhe Publish&MediaLtd that you should be aware of.

If these risks are making you reconsider your opinion on DuZhe Publish&MediaLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.