Continental Aerospace Technologies Holding Limited (HKG:232) Not Doing Enough For Some Investors As Its Shares Slump 27%

Continental Aerospace Technologies Holding Limited (HKG:232) shares have had a horrible month, losing 27% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 33%, which is great even in a bull market.

After such a large drop in price, Continental Aerospace Technologies Holding may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.9x, since almost half of all companies in Hong Kong have P/E ratios greater than 10x and even P/E's higher than 19x 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.

Recent times have been quite advantageous for Continental Aerospace Technologies Holding as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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 Continental Aerospace Technologies Holding

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Continental Aerospace Technologies Holding will help you shine a light on its historical performance.

How Is Continental Aerospace Technologies Holding's Growth Trending?

In order to justify its P/E ratio, Continental Aerospace Technologies Holding would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 219%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Continental Aerospace Technologies Holding is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Continental Aerospace Technologies Holding's P/E

The softening of Continental Aerospace Technologies Holding's shares means its P/E is now sitting at a pretty low level. 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.

As we suspected, our examination of Continental Aerospace Technologies Holding revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Continental Aerospace Technologies Holding that you need to take into consideration.

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.

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