The Market Doesn't Like What It Sees From CN Energy Group. Inc.'s (NASDAQ:CNEY) Earnings Yet As Shares Tumble 57%

To the annoyance of some shareholders, CN Energy Group. Inc. (NASDAQ:CNEY) shares are down a considerable 57% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 79% loss during that time.

Since its price has dipped substantially, CN Energy Group may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.5x, since almost half of all companies in the United States have P/E ratios greater than 16x and even P/E's higher than 30x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for CN Energy Group as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

View our latest analysis for CN Energy Group

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on CN Energy Group will help you shine a light on its historical performance.

Is There Any Growth For CN Energy Group?

In order to justify its P/E ratio, CN Energy Group would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 387% last year. Still, incredibly EPS has fallen 75% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 6.4% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that CN Energy Group 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. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On CN Energy Group's P/E

The softening of CN Energy Group's shares means its P/E is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of CN Energy Group revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 5 warning signs for CN Energy Group (4 shouldn't be ignored!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than CN Energy Group. 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.