Yadong Group Holdings Limited (HKG:1795) Not Doing Enough For Some Investors As Its Shares Slump 29%

Yadong Group Holdings Limited (HKG:1795) shares have had a horrible month, losing 29% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 50% loss during that time.

Even after such a large drop in price, Yadong Group Holdings may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.4x, since almost half of all companies in Hong Kong have P/E ratios greater than 13x and even P/E's higher than 24x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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For instance, Yadong Group Holdings' receding earnings in recent times would have to be some food for thought. 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. 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 Yadong Group Holdings

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

Does Growth Match The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 12%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 21% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Yadong Group Holdings' P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Yadong Group Holdings' P/E?

Yadong Group Holdings' P/E has taken a tumble along with its share price. 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 Yadong Group Holdings maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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 rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Yadong Group Holdings (at least 3 which shouldn't be ignored), and understanding them should be part of your investment process.

If you're unsure about the strength of Yadong Group 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.