Earnings Working Against Sinomax Group Limited's (HKG:1418) Share Price Following 28% Dive

Sinomax Group Limited (HKG:1418) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. The last month has meant the stock is now only up 7.5% during the last year.

After such a large drop in price, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 13x, you may consider Sinomax Group as a highly attractive investment with its 3.9x P/E ratio. 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.

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As an illustration, earnings have deteriorated at Sinomax Group over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Sinomax Group

Although there are no analyst estimates available for Sinomax Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Sinomax Group would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 3.0% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 21% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Sinomax 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.

What We Can Learn From Sinomax Group's P/E?

Having almost fallen off a cliff, Sinomax Group's share price has pulled its P/E way down as well. 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 Sinomax 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Sinomax Group that you should be aware of.

If these risks are making you reconsider your opinion on Sinomax Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.