Not Many Are Piling Into MicroPort CardioFlow Medtech Corporation (HKG:2160) Stock Yet As It Plummets 27%

Unfortunately for some shareholders, the MicroPort CardioFlow Medtech Corporation (HKG:2160) share price has dived 27% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 28% in that time.

In spite of the heavy fall in price, MicroPort CardioFlow Medtech may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of -8.1x, since almost half of all companies in Hong Kong have P/E ratios greater than 10x and even P/E's higher than 20x are not unusual. 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.

MicroPort CardioFlow Medtech has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for MicroPort CardioFlow Medtech

Keen to find out how analysts think MicroPort CardioFlow Medtech's future stacks up against the industry? In that case, our free report is a great place to start.

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

There's an inherent assumption that a company should far underperform the market for P/E ratios like MicroPort CardioFlow Medtech's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 144% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 24% per year over the next three years. That's shaping up to be materially higher than the 21% each year growth forecast for the broader market.

In light of this, it's peculiar that MicroPort CardioFlow Medtech's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Shares in MicroPort CardioFlow Medtech have plummeted and its P/E is now low enough to touch the ground. 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 MicroPort CardioFlow Medtech currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware MicroPort CardioFlow Medtech is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than MicroPort CardioFlow Medtech. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.