Positive Sentiment Still Eludes Tian Lun Gas Holdings Limited (HKG:1600) Following 35% Share Price Slump

Tian Lun Gas Holdings Limited (HKG:1600) shareholders won't be pleased to see that the share price has had a very rough month, dropping 35% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 16% in that time.

Even after such a large drop in price, Tian Lun Gas Holdings' price-to-earnings (or "P/E") ratio of 9.5x might still make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 13x and even P/E's above 25x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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While the market has experienced earnings growth lately, Tian Lun Gas Holdings' earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Tian Lun Gas Holdings

Keen to find out how analysts think Tian Lun Gas Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Tian Lun Gas Holdings' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Tian Lun Gas Holdings' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 32%. This means it has also seen a slide in earnings over the longer-term as EPS is down 55% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 13% per year as estimated by the lone analyst watching the company. With the market predicted to deliver 13% growth per annum, the company is positioned for a comparable earnings result.

With this information, we find it odd that Tian Lun Gas Holdings is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Tian Lun Gas Holdings' P/E

The softening of Tian Lun Gas Holdings' shares means its P/E is now sitting at a pretty low level. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Tian Lun Gas Holdings' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Tian Lun Gas Holdings you should be aware of, and 1 of them doesn't sit too well with us.

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.