To the annoyance of some shareholders, E-Commodities Holdings Limited (HKG:1733) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 56% loss during that time.

In spite of the heavy fall in price, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 11x, you may still consider E-Commodities Holdings as a highly attractive investment with its 2.3x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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For example, consider that E-Commodities 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. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for E-Commodities Holdings

Although there are no analyst estimates available for E-Commodities Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For E-Commodities Holdings?

In order to justify its P/E ratio, E-Commodities Holdings would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 56% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 70% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 18% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that E-Commodities Holdings' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On E-Commodities Holdings' P/E

Having almost fallen off a cliff, E-Commodities Holdings' share price has pulled its P/E way down as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that E-Commodities Holdings maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for E-Commodities Holdings that you need to be mindful of.

If you're unsure about the strength of E-Commodities Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.