Benign Growth For China New Consumption Group Limited (HKG:8275) Underpins Stock's 52% Plummet

China New Consumption Group Limited (HKG:8275) shares have retraced a considerable 52% 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 31%, which is great even in a bull market.

Although its price has dipped substantially, China New Consumption Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of -4.8x, since almost half of all companies in Hong Kong have P/E ratios greater than 10x and even P/E's higher than 21x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With earnings growth that's exceedingly strong of late, China New Consumption Group has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

View our latest analysis for China New Consumption Group

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 China New Consumption Group's earnings, revenue and cash flow.

Is There Any Growth For China New Consumption Group?

There's an inherent assumption that a company should far underperform the market for P/E ratios like China New Consumption Group's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 71%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that China New Consumption Group's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On China New Consumption Group's P/E

Shares in China New Consumption Group have plummeted and its P/E is now low enough to touch the ground. 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.

We've established that China New Consumption Group maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. 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.

There are also other vital risk factors to consider and we've discovered 5 warning signs for China New Consumption Group (3 are a bit concerning!) that you should be aware of before investing here.

If you're unsure about the strength of China New Consumption Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.