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Shenzhen Aisidi Co., Ltd. (SZSE:002416) Not Doing Enough For Some Investors As Its Shares Slump 29%
Shenzhen Aisidi Co., Ltd. (SZSE:002416) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 67%, which is great even in a bull market.
Following the heavy fall in price, Shenzhen Aisidi's price-to-earnings (or "P/E") ratio of 28.5x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 37x and even P/E's above 74x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Recent times have been pleasing for Shenzhen Aisidi as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 Shenzhen Aisidi
Want the full picture on analyst estimates for the company? Then our free report on Shenzhen Aisidi will help you uncover what's on the horizon.How Is Shenzhen Aisidi's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as Shenzhen Aisidi's is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.7% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 32% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 26% over the next year. Meanwhile, the rest of the market is forecast to expand by 39%, which is noticeably more attractive.
In light of this, it's understandable that Shenzhen Aisidi's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Key Takeaway
Shenzhen Aisidi's recently weak share price has pulled its P/E below most other companies. 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 Shenzhen Aisidi maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Before you settle on your opinion, we've discovered 3 warning signs for Shenzhen Aisidi that you should be aware of.
You might be able to find a better investment than Shenzhen Aisidi. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
About SZSE:002416
Shenzhen Aisidi
Provides digital distribution and retail services in China and internationally.
Excellent balance sheet established dividend payer.