Unfortunately for some shareholders, the Alliance International Education Leasing Holdings Limited (HKG:1563) share price has dived 36% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 71% share price decline.
Following the heavy fall in price, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 9x, you may consider Alliance International Education Leasing Holdings as a highly attractive investment with its 3.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
For example, consider that Alliance International Education Leasing Holdings' financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, 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 Alliance International Education Leasing Holdings
What Are Growth Metrics Telling Us About The Low P/E?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Alliance International Education Leasing Holdings' to be considered reasonable.
Retrospectively, the last year delivered a frustrating 74% decrease to the company's bottom line. Even so, admirably EPS has lifted 75% in aggregate from three years ago, notwithstanding the last 12 months. 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.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's about the same on an annualised basis.
In light of this, it's peculiar that Alliance International Education Leasing Holdings' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.
The Final Word
Having almost fallen off a cliff, Alliance International Education Leasing Holdings' share price has pulled its P/E way down as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our examination of Alliance International Education Leasing Holdings revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Alliance International Education Leasing Holdings that you should be aware of.
If these risks are making you reconsider your opinion on Alliance International Education Leasing Holdings, 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.