Little Excitement Around Sharingtechnology, Inc.'s (TSE:3989) Earnings As Shares Take 28% Pounding

Sharingtechnology, Inc. (TSE:3989) shares have had a horrible month, losing 28% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 16%.

Even after such a large drop in price, Sharingtechnology's price-to-earnings (or "P/E") ratio of 7.7x might still make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 15x and even P/E's above 24x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Sharingtechnology as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Sharingtechnology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sharingtechnology.

Is There Any Growth For Sharingtechnology?

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

Retrospectively, the last year delivered an exceptional 85% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 225% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 7.7% per annum as estimated by the one analyst watching the company. That's shaping up to be materially lower than the 10% per annum growth forecast for the broader market.

In light of this, it's understandable that Sharingtechnology's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Sharingtechnology's P/E

The softening of Sharingtechnology's shares means its P/E is now sitting at a pretty low level. 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.

As we suspected, our examination of Sharingtechnology's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Sharingtechnology that you need to be mindful 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.