Chengdu KSW Technologies Co.,Ltd. (SHSE:688283) Shares Slammed 27% But Getting In Cheap Might Be Difficult Regardless

Chengdu KSW Technologies Co.,Ltd. (SHSE:688283) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 58% share price decline.

Although its price has dipped substantially, it's still not a stretch to say that Chengdu KSW TechnologiesLtd's price-to-earnings (or "P/E") ratio of 27.6x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 28x. 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 advantageous for Chengdu KSW TechnologiesLtd as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 Chengdu KSW TechnologiesLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Chengdu KSW TechnologiesLtd.

How Is Chengdu KSW TechnologiesLtd's Growth Trending?

The only time you'd be comfortable seeing a P/E like Chengdu KSW TechnologiesLtd's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. Pleasingly, EPS has also lifted 60% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 26% per annum over the next three years. That's shaping up to be similar to the 25% per year growth forecast for the broader market.

With this information, we can see why Chengdu KSW TechnologiesLtd is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

With its share price falling into a hole, the P/E for Chengdu KSW TechnologiesLtd looks quite average now. 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 Chengdu KSW TechnologiesLtd maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Chengdu KSW TechnologiesLtd (1 doesn't sit too well with us!) that you need to be mindful of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com