The Market Doesn't Like What It Sees From CDT Environmental Technology Investment Holdings Limited's (NASDAQ:CDTG) Earnings Yet

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider CDT Environmental Technology Investment Holdings Limited (NASDAQ:CDTG) as a highly attractive investment with its 4.3x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

The earnings growth achieved at CDT Environmental Technology Investment Holdings over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for CDT Environmental Technology Investment Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on CDT Environmental Technology Investment Holdings will help you shine a light on its historical performance.

Is There Any Growth For CDT Environmental Technology Investment Holdings?

There's an inherent assumption that a company should far underperform the market for P/E ratios like CDT Environmental Technology Investment Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the market, which is predicted to deliver 15% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why CDT Environmental Technology Investment Holdings is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that CDT Environmental Technology Investment Holdings maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with CDT Environmental Technology Investment Holdings (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.