More Unpleasant Surprises Could Be In Store For Fujian Apex Software Co.,LTD's (SHSE:603383) Shares After Tumbling 25%

Fujian Apex Software Co.,LTD (SHSE:603383) shares have had a horrible month, losing 25% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 7.4% over that longer period.

Although its price has dipped substantially, there still wouldn't be many who think Fujian Apex SoftwareLTD's price-to-earnings (or "P/E") ratio of 31.7x is worth a mention when the median P/E in China is similar at about 33x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been pleasing for Fujian Apex SoftwareLTD as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. 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.

See our latest analysis for Fujian Apex SoftwareLTD

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Fujian Apex SoftwareLTD.

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Fujian Apex SoftwareLTD would need to produce growth that's similar to the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Although pleasingly EPS has lifted 72% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 33% during the coming year according to the four analysts following the company. With the market predicted to deliver 38% growth , the company is positioned for a weaker earnings result.

With this information, we find it interesting that Fujian Apex SoftwareLTD is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Fujian Apex SoftwareLTD's P/E?

With its share price falling into a hole, the P/E for Fujian Apex SoftwareLTD looks quite average now. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Fujian Apex SoftwareLTD's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Fujian Apex SoftwareLTD you should know about.

Of course, you might also be able to find a better stock than Fujian Apex SoftwareLTD. 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.