Grand Venture Technology Limited (SGX:JLB) May Have Run Too Fast Too Soon With Recent 28% Price Plummet

The Grand Venture Technology Limited (SGX:JLB) share price has fared very poorly over the last month, falling by a substantial 28%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 66% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Grand Venture Technology's P/E ratio of 9.5x, since the median price-to-earnings (or "P/E") ratio in Singapore is also close to 10x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times haven't been advantageous for Grand Venture Technology as its earnings have been rising slower than most other companies. One possibility is that the P/E is moderate because investors think this lacklustre earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Check out the opportunities and risks within the SG Machinery industry.

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

How Is Grand Venture Technology's Growth Trending?

The only time you'd be comfortable seeing a P/E like Grand Venture Technology's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 9.4% last year. The latest three year period has also seen an excellent 182% overall rise in EPS, aided somewhat by its short-term performance. 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 0.8% each year as estimated by the twin analysts watching the company. With the market predicted to deliver 9.5% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's curious that Grand Venture Technology's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Grand Venture Technology's P/E?

With its share price falling into a hole, the P/E for Grand Venture Technology looks quite average now. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Grand Venture Technology currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 2 warning signs for Grand Venture Technology (1 is a bit unpleasant!) that you should be aware of.

Of course, you might also be able to find a better stock than Grand Venture Technology. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.