Not Many Are Piling Into Zengame Technology Holding Limited (HKG:2660) Stock Yet As It Plummets 25%

The Zengame Technology Holding Limited (HKG:2660) share price has fared very poorly over the last month, falling by a substantial 25%. Indeed, the recent drop has reduced its annual gain to a relatively sedate 8.2% over the last twelve months.

Even after such a large drop in price, Zengame Technology Holding's price-to-earnings (or "P/E") ratio of 4.6x might still make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 9x and even P/E's above 19x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

The recent earnings growth at Zengame Technology Holding would have to be considered satisfactory if not spectacular. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

View our latest analysis for Zengame Technology Holding

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Is There Any Growth For Zengame Technology Holding?

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

Retrospectively, the last year delivered a decent 5.8% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 231% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 23% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Zengame Technology Holding's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Zengame Technology Holding's recently weak share price has pulled its P/E below most other companies. 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.

Our examination of Zengame Technology Holding revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Zengame Technology Holding that you should be aware of.

If these risks are making you reconsider your opinion on Zengame Technology Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.