CNFinance Holdings Limited (NYSE:CNF) Might Not Be As Mispriced As It Looks After Plunging 33%

The CNFinance Holdings Limited (NYSE:CNF) share price has fared very poorly over the last month, falling by a substantial 33%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 64% loss during that time.

After such a large drop 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 3.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

CNFinance Holdings has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for CNFinance Holdings

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on CNFinance Holdings' earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

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.

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. The latest three year period has also seen an excellent 43% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

It's interesting to note that the rest of the market is similarly expected to grow by 12% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that CNFinance Holdings' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

Having almost fallen off a cliff, CNFinance Holdings' share price has pulled its P/E way down as well. 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.

Our examination of CNFinance Holdings revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for CNFinance Holdings (2 are potentially serious!) that you need to be mindful of.

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

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