Benign Growth For CNFinance Holdings Limited (NYSE:CNF) Underpins Stock's 57% Plummet

CNFinance Holdings Limited (NYSE:CNF) shareholders won't be pleased to see that the share price has had a very rough month, dropping 57% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 57% share price decline.

Following the heavy fall in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider CNFinance Holdings as a highly attractive investment with its 4.4x 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.

For example, consider that CNFinance Holdings' financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for CNFinance Holdings

Although there are no analyst estimates available for CNFinance Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For CNFinance Holdings?

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

Retrospectively, the last year delivered a frustrating 30% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 60% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 15% shows it's an unpleasant look.

With this information, we are not surprised that CNFinance Holdings is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On CNFinance Holdings' P/E

Shares in CNFinance Holdings have plummeted and its P/E is now low enough to touch the ground. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that CNFinance Holdings maintains its low P/E on the weakness of its sliding earnings over the medium-term, 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 5 warning signs we've spotted with CNFinance Holdings (including 3 which are potentially serious).

If you're unsure about the strength of CNFinance Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.