More Unpleasant Surprises Could Be In Store For Yadong Group Holdings Limited's (HKG:1795) Shares After Tumbling 26%

Unfortunately for some shareholders, the Yadong Group Holdings Limited (HKG:1795) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 72% loss during that time.

Although its price has dipped substantially, it's still not a stretch to say that Yadong Group Holdings' price-to-earnings (or "P/E") ratio of 10.7x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 11x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Yadong Group Holdings has been doing a decent job lately as it's been growing earnings at a reasonable pace. One possibility is that the P/E is moderate because investors think this good earnings growth might only be parallel to 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 not quite in favour.

Check out our latest analysis for Yadong Group Holdings

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 Yadong Group Holdings' earnings, revenue and cash flow.

Is There Some Growth For Yadong Group Holdings?

In order to justify its P/E ratio, Yadong Group Holdings would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 7.2% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 5.3% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 18% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Yadong Group Holdings' P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

What We Can Learn From Yadong Group Holdings' P/E?

With its share price falling into a hole, the P/E for Yadong Group Holdings looks quite average now. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Yadong Group Holdings revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 4 warning signs for Yadong Group Holdings (2 can't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Yadong Group Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.