Guangdong Join-Share Financing Guarantee Investment Co., Ltd. (HKG:1543) May Have Run Too Fast Too Soon With Recent 26% Price Plummet

To the annoyance of some shareholders, Guangdong Join-Share Financing Guarantee Investment Co., Ltd. (HKG:1543) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 49% in that time.

Although its price has dipped substantially, given around half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 9x, you may still consider Guangdong Join-Share Financing Guarantee Investment as a stock to potentially avoid with its 14.6x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for Guangdong Join-Share Financing Guarantee Investment recently, which is pleasing to see. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Guangdong Join-Share Financing Guarantee Investment

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 Guangdong Join-Share Financing Guarantee Investment's earnings, revenue and cash flow.

How Is Guangdong Join-Share Financing Guarantee Investment's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Guangdong Join-Share Financing Guarantee Investment's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 10% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 59% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 22% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that Guangdong Join-Share Financing Guarantee Investment's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Guangdong Join-Share Financing Guarantee Investment's P/E

Guangdong Join-Share Financing Guarantee Investment's P/E hasn't come down all the way after its stock plunged. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Guangdong Join-Share Financing Guarantee Investment revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Guangdong Join-Share Financing Guarantee Investment (2 don't sit too well with us!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Guangdong Join-Share Financing Guarantee Investment, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.