of Shanghai Menon Animal Nutrition Technology Co., Ltd. (SZSE:301156) shares have fallen 37% over the past 30 days, shedding much of the recent gains. After a few strong quarters, the stock has been largely flat this year, so long term shareholders will likely bemoan the decline in the share price.
Even after such a steep decline in stock prices, not many will notice that Shanghai Menon Animal Nutrition Technology’s P/E ratio is 29.3x, given that the average P/E ratio in China is at a similar level of about 29x. However, it is unwise to ignore P/E ratios without explanation, as it could lead investors to ignore clear opportunities or costly mistakes.
The earnings growth that Shanghai Menon Animal Nutrition Technology has achieved over the past year would be plenty satisfactory for most companies. One possibility is that the middling price-to-earnings multiple is due to investors believing that this respectable earnings growth is not enough to outperform the broader market in the near future. If you’re interested in this company, you’d hope that’s not the case, so you could buy shares while things aren’t going so well.
Read our latest analysis on Shanghai Menon Animal Nutrition Technology
While there are no analyst forecasts, checking the company’s recent developments can give you an idea of what the future holds for the company. free Shanghai Menon Animal Nutrition Technology earnings, revenue and cash flow report.
Is growth in line with the P/E?
It’s only comforting to see a P/E like Shanghai Menon Animal Nutrition Technology’s if the company’s growth is closely linked to the market.
Looking back at revenue growth over the last year, the company recorded an impressive 26% increase. Despite this recent strong growth, the three-year EPS decline is a frustrating 35% overall, and the company is struggling to keep up. So, unfortunately, we have to admit that the company hasn’t done very well in terms of growing revenue over this period.
Comparing this medium-term earnings trajectory with the overall market’s projected one-year growth of 38% shows an unfavorable outlook.
This information raises concerns that Shanghai Menon Animal Nutrition Technology is trading at a P/E roughly in line with the market. It appears most investors are ignoring the recent weak growth rate and hoping for an improvement in the company’s business outlook. Only the boldest would consider these prices sustainable, as a continuation of recent earnings trends will likely ultimately weigh on the share price.
What can we learn from Shanghai Menon Animal Nutrition Technology’s P/E?
After Shanghai Menon Animal Nutrition Technology’s share price plunged, the company’s price-to-earnings ratio has remained at the market average level. Although one should generally refrain from placing too much importance on the price-to-earnings ratio when making investment decisions, the price-to-earnings ratio may reveal a lot about what other market participants think about the company.
We find that Shanghai Menon Animal Nutrition Technology’s recent earnings have declined in the medium term, which is why the company’s shares are currently trading at a higher than expected P/E. If earnings regress and fall short of market expectations, there is a risk that the share price will fall, which would further reduce the moderate P/E. Unless the recent medium term picture improves, it is difficult to accept these prices as reasonable.
Also noteworthy is that Two Warning Signs for Shanghai Menon Animal Nutrition Technology (1 is a bit uncomfortable for us!) You need to take that into consideration.
These are Risks make us reconsider our opinion on Shanghai Menon Animal Nutrition TechnologyTo see what other stocks are out there, check out our interactive list of high quality stocks.
Valuation is complicated, but we can help make it simple.
To find out if Shanghai Menon Animal Nutrition Technology is overvalued or undervalued, take a look at our comprehensive analysis. Fair value estimates, risks and warnings, dividends, insider trading, financial strength.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
