Little Excitement Around Wetouch Technology Inc.'s (NASDAQ:WETH) Earnings As Shares Take 26% Pounding

Wetouch Technology Inc. (NASDAQ:WETH) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. The recent drop has obliterated the annual return, with the share price now down 2.6% over that longer period.

Since its price has dipped substantially, Wetouch Technology may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.4x, since almost half of all companies in the United States have P/E ratios greater than 20x and even P/E's higher than 34x 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.

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Wetouch Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong 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 Wetouch Technology

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

How Is Wetouch Technology's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 79% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 89% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 16% shows it's an unpleasant look.

In light of this, it's understandable that Wetouch Technology's P/E would sit below the majority of other companies. 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.

What We Can Learn From Wetouch Technology's P/E?

Shares in Wetouch Technology have plummeted and its P/E is now low enough to touch the ground. 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.

We've established that Wetouch Technology 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. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Wetouch Technology you should be aware of, and 2 of them are concerning.

If these risks are making you reconsider your opinion on Wetouch Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.