Jiangsu NandaSoft Technology Company Limited (HKG:8045) Looks Inexpensive After Falling 29% But Perhaps Not Attractive Enough

Jiangsu NandaSoft Technology Company Limited (HKG:8045) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 70% share price decline.

After such a large drop in price, Jiangsu NandaSoft Technology may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of -1.6x, 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.

Recent times have been quite advantageous for Jiangsu NandaSoft Technology as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Jiangsu NandaSoft Technology

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jiangsu NandaSoft Technology 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, Jiangsu NandaSoft Technology would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 59%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. 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 24% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Jiangsu NandaSoft Technology is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Having almost fallen off a cliff, Jiangsu NandaSoft Technology's share price has pulled its P/E way down as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Jiangsu NandaSoft Technology maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Jiangsu NandaSoft Technology that you should be aware of.

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.