Some Beijing Energy International Holding Co., Ltd. (HKG:686) Shareholders Look For Exit As Shares Take 34% Pounding

Beijing Energy International Holding Co., Ltd. (HKG:686) shares have had a horrible month, losing 34% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.

Even after such a large drop in price, there still wouldn't be many who think Beijing Energy International Holding's price-to-earnings (or "P/E") ratio of 9.8x is worth a mention when the median P/E in Hong Kong is similar at about 9x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

As an illustration, earnings have deteriorated at Beijing Energy International Holding over the last year, which is not ideal at all. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Beijing Energy International Holding

Although there are no analyst estimates available for Beijing Energy International Holding, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Growth For Beijing Energy International Holding?

In order to justify its P/E ratio, Beijing Energy International Holding would need to produce growth that's similar to the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 48%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Beijing Energy International Holding's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Final Word

Beijing Energy International Holding's plummeting stock price has brought its P/E right back to the rest of the market. 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 Beijing Energy International Holding revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 4 warning signs for Beijing Energy International Holding (2 are concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on Beijing Energy International Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.