To the annoyance of some shareholders, Intron Technology Holdings Limited (HKG:1760) shares are down a considerable 27% 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 69% loss during that time.
Even after such a large drop in price, Intron Technology Holdings may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4x, since almost half of all companies in Hong Kong have P/E ratios greater than 9x and even P/E's higher than 18x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
Intron Technology Holdings could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 Intron Technology Holdings
How Is Intron Technology Holdings' Growth Trending?
The only time you'd be truly comfortable seeing a P/E as depressed as Intron Technology Holdings' is when the company's growth is on track to lag the market decidedly.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 38%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 123% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 15% per annum over the next three years. With the market only predicted to deliver 13% each year, the company is positioned for a stronger earnings result.
In light of this, it's peculiar that Intron Technology Holdings' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Bottom Line On Intron Technology Holdings' P/E
Having almost fallen off a cliff, Intron Technology 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.
We've established that Intron Technology Holdings currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Intron Technology Holdings (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.
If you're unsure about the strength of Intron Technology 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.