The Market Doesn't Like What It Sees From Man Wah Holdings Limited's (HKG:1999) Earnings Yet As Shares Tumble 26%

Man Wah Holdings Limited (HKG:1999) shares have had a horrible month, losing 26% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 36% in that time.

Even 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 11x, you may still consider Man Wah Holdings as an attractive investment with its 6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Man Wah Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 Man Wah Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Man Wah Holdings .

Does Growth Match The Low P/E?

Man Wah Holdings' 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 growth, the company posted a terrific increase of 19%. The latest three year period has also seen a 7.4% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 4.8% per annum as estimated by the eleven analysts watching the company. With the market predicted to deliver 14% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Man Wah Holdings is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Man Wah Holdings' P/E?

Man Wah Holdings' recently weak share price has pulled its P/E below most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Man Wah Holdings maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for Man Wah Holdings that you should be aware of.

Of course, you might also be able to find a better stock than Man Wah 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.