Benign Growth For Shenzhen Kinwong Electronic Co., Ltd. (SHSE:603228) Underpins Stock's 27% Plummet

Shenzhen Kinwong Electronic Co., Ltd. (SHSE:603228) shares have had a horrible month, losing 27% after a relatively good period beforehand. Indeed, the recent drop has reduced its annual gain to a relatively sedate 5.3% over the last twelve months.

After such a large drop in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Shenzhen Kinwong Electronic as an attractive investment with its 20.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

While the market has experienced earnings growth lately, Shenzhen Kinwong Electronic's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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 Shenzhen Kinwong Electronic

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Kinwong Electronic.

How Is Shenzhen Kinwong Electronic's Growth Trending?

Shenzhen Kinwong Electronic's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 5.3%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 17% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 24% per annum, which is noticeably more attractive.

With this information, we can see why Shenzhen Kinwong Electronic is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Shenzhen Kinwong Electronic's P/E?

Shenzhen Kinwong Electronic's recently weak share price has pulled its P/E below most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Shenzhen Kinwong Electronic maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for Shenzhen Kinwong Electronic that we have uncovered.

If you're unsure about the strength of Shenzhen Kinwong Electronic's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.