State Energy Group International Assets Holdings Limited's (HKG:918) 80% Dip In Price Shows Sentiment Is Matching Earnings

The State Energy Group International Assets Holdings Limited (HKG:918) share price has fared very poorly over the last month, falling by a substantial 80%. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Since its price has dipped substantially, State Energy Group International Assets Holdings may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.3x, since almost half of all companies in Hong Kong have P/E ratios greater than 11x and even P/E's higher than 25x 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.

As an illustration, earnings have deteriorated at State Energy Group International Assets Holdings 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.

View our latest analysis for State Energy Group International Assets Holdings

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

What Are Growth Metrics Telling Us About The Low P/E?

State Energy Group International Assets 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.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 45% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's an unpleasant look.

In light of this, it's understandable that State Energy Group International Assets Holdings' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

State Energy Group International Assets Holdings' P/E has taken a tumble along with its share price. 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 State Energy Group International Assets Holdings revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. 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.

We don't want to rain on the parade too much, but we did also find 6 warning signs for State Energy Group International Assets Holdings (2 are a bit unpleasant!) that you need to be mindful of.

If you're unsure about the strength of State Energy Group International Assets Holdings' 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. 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.
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