Lacklustre Performance Is Driving Beijing Gas Blue Sky Holdings Limited's (HKG:6828) 26% Price Drop

Beijing Gas Blue Sky Holdings Limited (HKG:6828) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 33% share price drop.

Even after such a large drop in price, Beijing Gas Blue Sky Holdings' price-to-earnings (or "P/E") ratio of 5.8x 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 10x and even P/E's above 20x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's exceedingly strong of late, Beijing Gas Blue Sky Holdings has been doing very well. 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.

View our latest analysis for Beijing Gas Blue Sky Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Beijing Gas Blue Sky Holdings will help you shine a light on its historical performance.

How Is Beijing Gas Blue Sky Holdings' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Beijing Gas Blue Sky Holdings' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 191% gain to the company's bottom line. 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.

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

In light of this, it's understandable that Beijing Gas Blue Sky Holdings' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

Beijing Gas Blue Sky Holdings' P/E has taken a tumble along with its share price. 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.

As we suspected, our examination of Beijing Gas Blue Sky Holdings revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Beijing Gas Blue Sky Holdings (1 shouldn't be ignored!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Beijing Gas Blue Sky Holdings. 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.