YTO International Express and Supply Chain Technology Limited (HKG:6123) Held Back By Insufficient Growth Even After Shares Climb 25%

YTO International Express and Supply Chain Technology Limited (HKG:6123) shares have continued their recent momentum with a 25% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, YTO International Express and Supply Chain Technology may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.8x, since almost half of all companies in Hong Kong have P/E ratios greater than 10x and even P/E's higher than 19x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at YTO International Express and Supply Chain Technology over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for YTO International Express and Supply Chain Technology

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on YTO International Express and Supply Chain Technology will help you shine a light on its historical performance.

Is There Any Growth For YTO International Express and Supply Chain Technology?

In order to justify its P/E ratio, YTO International Express and Supply Chain Technology would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 62% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 21% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that YTO International Express and Supply Chain Technology's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

The latest share price surge wasn't enough to lift YTO International Express and Supply Chain Technology's P/E close to the market median. 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 YTO International Express and Supply Chain Technology 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 2 warning signs for YTO International Express and Supply Chain Technology (1 can't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than YTO International Express and Supply Chain Technology. 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.