Not Many Are Piling Into Yangzijiang Shipbuilding (Holdings) Ltd. (SGX:BS6) Stock Yet As It Plummets 26%

Yangzijiang Shipbuilding (Holdings) Ltd. (SGX:BS6) shares have had a horrible month, losing 26% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 35%, which is great even in a bull market.

In spite of the heavy fall in price, Yangzijiang Shipbuilding (Holdings)'s price-to-earnings (or "P/E") ratio of 7.4x might still make it look like a buy right now compared to the market in Singapore, where around half of the companies have P/E ratios above 12x and even P/E's above 22x 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.

Yangzijiang Shipbuilding (Holdings) certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Yangzijiang Shipbuilding (Holdings)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Yangzijiang Shipbuilding (Holdings).

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Yangzijiang Shipbuilding (Holdings)'s is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 62% gain to the company's bottom line. Pleasingly, EPS has also lifted 229% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 14% per year as estimated by the nine analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 7.4% per year, which is noticeably less attractive.

In light of this, it's peculiar that Yangzijiang Shipbuilding (Holdings)'s P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Yangzijiang Shipbuilding (Holdings)'s P/E?

The softening of Yangzijiang Shipbuilding (Holdings)'s shares means its P/E is now sitting at a pretty low level. 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.

Our examination of Yangzijiang Shipbuilding (Holdings)'s analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Yangzijiang Shipbuilding (Holdings) with six simple checks.

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.