ChinaEtek Service & Technology Co., Ltd. (SZSE:301208) Not Doing Enough For Some Investors As Its Shares Slump 29%

The ChinaEtek Service & Technology Co., Ltd. (SZSE:301208) share price has fared very poorly over the last month, falling by a substantial 29%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 28% in that time.

After such a large drop in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider ChinaEtek Service & Technology as an attractive investment with its 18.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For example, consider that ChinaEtek Service & Technology's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming 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 out of favour.

Check out our latest analysis for ChinaEtek Service & Technology

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, ChinaEtek Service & Technology would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 12%. Regardless, EPS has managed to lift by a handy 28% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Comparing that to the market, which is predicted to deliver 35% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why ChinaEtek Service & Technology is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

The softening of ChinaEtek Service & Technology's shares means its P/E is now sitting at a pretty low level. 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.

As we suspected, our examination of ChinaEtek Service & Technology revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - ChinaEtek Service & Technology has 3 warning signs (and 1 which can't be ignored) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.