The Market Doesn't Like What It Sees From Milkyway Chemical Supply Chain Service Co.,Ltd's (SHSE:603713) Earnings Yet As Shares Tumble 27%

Milkyway Chemical Supply Chain Service Co.,Ltd (SHSE:603713) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 41% in that time.

After such a large drop in price, Milkyway Chemical Supply Chain ServiceLtd may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.9x, since almost half of all companies in China have P/E ratios greater than 28x and even P/E's higher than 52x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Milkyway Chemical Supply Chain ServiceLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Milkyway Chemical Supply Chain ServiceLtd

Keen to find out how analysts think Milkyway Chemical Supply Chain ServiceLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Milkyway Chemical Supply Chain ServiceLtd's Growth Trending?

Milkyway Chemical Supply Chain ServiceLtd'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 17%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 45% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 18% each year as estimated by the six analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 24% per annum, which is noticeably more attractive.

In light of this, it's understandable that Milkyway Chemical Supply Chain ServiceLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Milkyway Chemical Supply Chain ServiceLtd's recently weak share price has pulled its P/E below most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Milkyway Chemical Supply Chain ServiceLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Milkyway Chemical Supply Chain ServiceLtd (1 is a bit concerning!) that we have uncovered.

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.

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