YTO International Express and Supply Chain Technology Limited (HKG:6123) shareholders who have been waiting for something to happen have been hit with the share price falling 26% in the last month. The drop in the past 30 days caps off a tough year for shareholders, with the share price falling 29% in that time.
Despite the significant decline in its share price, YTO International Express and Supply Chain Technology's price-to-earnings (P/E) ratio of 4.8x may still look worth buying at the moment, compared to the Hong Kong market, where roughly half of the companies have P/E ratios of 9x or more, and even P/E ratios of 18x or more are quite common. That said, we'll need to dig a bit deeper to determine whether there's a rational basis for the decline in P/E.
As an example, YTO International Express and Supply Chain Technology's earnings have deteriorated over the past year, which is not ideal at all. One possibility is that the price-to-earnings multiple is low because investors believe the company will not do enough to avoid underperforming the broader market in the near future. However, if this does not happen, existing shareholders may be feeling optimistic about the future direction of the stock price.
Read our latest analysis on YTO International Express and Supply Chain Technologies
SEHK:6123 Price to Earnings Ratio vs. Industry 12 August 2024 While we don't have analyst forecasts, you can check this free report on YTO International Express and Supply Chain Technology's earnings, revenue and cash flow to see how recent trends are setting the company up for the future.
What do growth metrics tell us about a low P/E?
The assumption is essentially that for a company like YTO International Express or Supply Chain Technology to have a P/E ratio that is deemed reasonable, the company must be performing below the market average.
Looking back at last year's performance, unfortunately the company's profits fell by 29%, and as a result, profits three years ago fell by an overall 62%, so shareholders are likely to be pessimistic about the company's medium-term profit growth rate.
In contrast to the company, the rest of the market is expected to grow 19% over the next 12 months, which explains the company's recent medium-term revenue decline quite well.
With this information, it's not surprising to see that YTO International Express and Supply Chain Technology is trading at a lower P/E than the market, but we think declining earnings are unlikely to lead to a stable P/E over the long term, leaving shareholders open to disappointment in the future. Even these prices may be difficult to maintain, as recent earnings trends have already put pressure on the share price.
Final Words
YTO International Express and Supply Chain Technology's P/E has been falling along with the share price, and while it's not wise to rely solely on the price-to-earnings ratio to decide whether or not to sell a stock, it can be a practical indicator of a company's future prospects.
As expected, our research into YTO International Express and Supply Chain Technology reveals that shrinking earnings over the medium term, despite a growing market, is driving the low P/E. Currently, shareholders are accepting that future earnings will probably not be a pleasant surprise and are accepting the low P/E. If recent medium term earnings trends continue, it is unlikely that the share price will move significantly in either direction in the near future under these circumstances.
Before you take the next step, you should be aware of the 2 warning signs we've spotted for YTO International Express and Supply Chain Technology (1 is potentially serious!).
If these risks have you reconsidering your opinion on YTO International Express and Supply Chain Technology, check out our interactive list of high quality stocks to see what other stocks are out there.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please 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 herein.
