Risks Still Elevated At These Prices As Xi'an Kingfar Property Services Co., Ltd. (HKG:1354) Shares Dive 30%

Xi'an Kingfar Property Services Co., Ltd. (HKG:1354) shares have had a horrible month, losing 30% after a relatively good period beforehand. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Even after such a large drop in price, given close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 11x, you may still consider Xi'an Kingfar Property Services as a stock to avoid entirely with its 20.7x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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We'd have to say that with no tangible growth over the last year, Xi'an Kingfar Property Services' earnings have been unimpressive. It might be that many are expecting an improvement to the uninspiring earnings performance over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Xi'an Kingfar Property Services

How Is Xi'an Kingfar Property Services' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Xi'an Kingfar Property Services' is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Still, the latest three year period was better as it's delivered a decent 18% overall rise in EPS. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 19% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Xi'an Kingfar Property Services is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Xi'an Kingfar Property Services' P/E?

Xi'an Kingfar Property Services' shares may have retreated, but its P/E is still flying high. 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.

Our examination of Xi'an Kingfar Property Services revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Xi'an Kingfar Property Services you should know about.

If you're unsure about the strength of Xi'an Kingfar Property Services' 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.