Benign Growth For ShiFang Holding Limited (HKG:1831) Underpins Stock's 38% Plummet

Unfortunately for some shareholders, the ShiFang Holding Limited (HKG:1831) share price has dived 38% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 75% share price decline.

Even after such a large drop in price, ShiFang Holding may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of -1x, since almost half of all companies in Hong Kong have P/E ratios greater than 10x and even P/E's higher than 21x 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.

The earnings growth achieved at ShiFang Holding over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. 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 ShiFang Holding

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

Is There Any Growth For ShiFang Holding?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 18% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that ShiFang Holding's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

Shares in ShiFang Holding 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.

As we suspected, our examination of ShiFang Holding revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware ShiFang Holding is showing 4 warning signs in our investment analysis, and 2 of those are concerning.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.