The Deewin Tianxia Co., Ltd (HKG:2418) share price has fared very poorly over the last month, falling by a substantial 48%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 58% loss during that time.
Although its price has dipped substantially, it's still not a stretch to say that Deewin Tianxia's price-to-earnings (or "P/E") ratio of 10.7x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
As an illustration, earnings have deteriorated at Deewin Tianxia over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
View our latest analysis for Deewin Tianxia
Is There Some Growth For Deewin Tianxia?
Deewin Tianxia's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.
Retrospectively, the last year delivered a frustrating 43% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 70% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.
With this information, we find it concerning that Deewin Tianxia is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.
The Final Word
With its share price falling into a hole, the P/E for Deewin Tianxia looks quite average now. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
We've established that Deewin Tianxia currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
Before you settle on your opinion, we've discovered 5 warning signs for Deewin Tianxia (3 can't be ignored!) that you should be aware of.
If these risks are making you reconsider your opinion on Deewin Tianxia, 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.