Slammed 40% Alphamab Oncology (HKG:9966) Screens Well Here But There Might Be A Catch

Alphamab Oncology (HKG:9966) shareholders that were waiting for something to happen have been dealt a blow with a 40% share price drop in the last month. Longer-term, the stock has been solid despite a difficult 30 days, gaining 24% in the last year.

In spite of the heavy fall in price, Alphamab Oncology may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of -24.7x, 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.

Alphamab Oncology certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Alphamab Oncology

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Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Alphamab Oncology's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 24% per year as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 20% per annum growth forecast for the broader market.

In light of this, it's peculiar that Alphamab Oncology's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Alphamab Oncology's P/E?

Shares in Alphamab Oncology have plummeted and its P/E is now low enough to touch the ground. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Alphamab Oncology currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Alphamab Oncology that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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