AsiaInfo Technologies Limited (HKG:1675) Stock's 32% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The AsiaInfo Technologies Limited (HKG:1675) share price has fared very poorly over the last month, falling by a substantial 32%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 57% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about AsiaInfo Technologies' P/E ratio of 7.5x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

While the market has experienced earnings growth lately, AsiaInfo Technologies' earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for AsiaInfo Technologies

If you'd like to see what analysts are forecasting going forward, you should check out our free report on AsiaInfo Technologies.

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

AsiaInfo Technologies' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a frustrating 37% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 33% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 27% each year as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 15% per year, which is noticeably less attractive.

In light of this, it's curious that AsiaInfo Technologies' P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From AsiaInfo Technologies' P/E?

With its share price falling into a hole, the P/E for AsiaInfo Technologies looks quite average now. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that AsiaInfo Technologies currently trades on a 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 pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for AsiaInfo Technologies that you should be aware of.

You might be able to find a better investment than AsiaInfo Technologies. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com