Beijing Asiacom Information Technology Co,.Ltd's (SZSE:301085) 29% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/ERatio

Beijing Asiacom Information Technology Co,.Ltd (SZSE:301085) shares have had a horrible month, losing 29% after a relatively good period beforehand. Longer-term shareholders would now have taken a real hit with the stock declining 7.6% in the last year.

Although its price has dipped substantially, Beijing Asiacom Information Technology Co.Ltd's price-to-earnings (or "P/E") ratio of 48.1x might still make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For example, consider that Beijing Asiacom Information Technology Co.Ltd's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Beijing Asiacom Information Technology Co.Ltd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Beijing Asiacom Information Technology Co.Ltd's earnings, revenue and cash flow.

Does Growth Match The High P/E?

Beijing Asiacom Information Technology Co.Ltd's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 5.0% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 45% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

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

In light of this, it's alarming that Beijing Asiacom Information Technology Co.Ltd's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

Beijing Asiacom Information Technology Co.Ltd's shares may have retreated, but its P/E is still flying high. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Beijing Asiacom Information Technology Co.Ltd currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Beijing Asiacom Information Technology Co.Ltd is showing 3 warning signs in our investment analysis, and 2 of those are concerning.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.