Positive Sentiment Still Eludes Hywin Holdings Ltd. (NASDAQ:HYW) Following 73% Share Price Slump

The Hywin Holdings Ltd. (NASDAQ:HYW) share price has fared very poorly over the last month, falling by a substantial 73%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 68% loss during that time.

Since its price has dipped substantially, Hywin Holdings may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.8x, since almost half of all companies in the United States have P/E ratios greater than 17x and even P/E's higher than 33x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Hywin Holdings has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Hywin Holdings

Want the full picture on analyst estimates for the company? Then our free report on Hywin Holdings will help you uncover what's on the horizon.

Is There Any Growth For Hywin Holdings?

The only time you'd be truly comfortable seeing a P/E as depressed as Hywin Holdings' is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 45%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 9.2% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to climb by 9.3% during the coming year according to the sole analyst following the company. With the market predicted to deliver 10% growth , the company is positioned for a comparable earnings result.

With this information, we find it odd that Hywin Holdings is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Hywin Holdings' P/E?

Shares in Hywin Holdings have plummeted and its P/E is now low enough to touch the ground. 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 Hywin Holdings currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Hywin Holdings you should be aware of.

Of course, you might also be able to find a better stock than Hywin Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.