Intron Technology Holdings Limited (HKG:1760) shareholders won't be pleased to see that the share price has had a very rough month, dropping 30% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 43% in that time.
Even after such a large drop in price, Intron Technology Holdings may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.5x, since almost half of all companies in Hong Kong have P/E ratios greater than 11x and even P/E's higher than 22x are not unusual. However, the P/E might be 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. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
See our latest analysis for Intron Technology Holdings
How Is Intron Technology Holdings' Growth Trending?
There's an inherent assumption that a company should underperform the market for P/E ratios like Intron Technology Holdings' to be considered reasonable.
Retrospectively, the last year delivered a frustrating 34% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 24% per year over the next three years. With the market only predicted to deliver 14% per year, the company is positioned for a stronger earnings result.
With this information, we find it odd that Intron Technology Holdings is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Bottom Line On Intron Technology Holdings' P/E
The softening of Intron Technology Holdings' shares means its P/E is now sitting at a pretty low level. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
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. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
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 2 which don't sit too well with us), and understanding these should be part of your investment process.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.