360 Ludashi Holdings Limited (HKG:3601) Looks Inexpensive But Perhaps Not Attractive Enough

With a price-to-earnings (or "P/E") ratio of 8.4x 360 Ludashi Holdings Limited (HKG:3601) may be sending bullish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios greater than 12x and even P/E's higher than 27x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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For example, consider that 360 Ludashi Holdings' financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, 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.

See our latest analysis for 360 Ludashi Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on 360 Ludashi Holdings will help you shine a light on its historical performance.

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

In order to justify its P/E ratio, 360 Ludashi Holdings would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 18% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 37% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 21% shows it's an unpleasant look.

With this information, we are not surprised that 360 Ludashi Holdings is trading at a P/E lower than the market. 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 Bottom Line On 360 Ludashi Holdings' P/E

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 360 Ludashi Holdings maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. 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.

It is also worth noting that we have found 5 warning signs for 360 Ludashi Holdings (2 can't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than 360 Ludashi Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.