Weibo Corporation (NASDAQ:WB) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 14% share price drop.

Although its price has dipped substantially, Weibo's price-to-earnings (or "P/E") ratio of 6.3x might still make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 16x and even P/E's above 29x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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Weibo hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. 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.

Check out our latest analysis for Weibo

Want the full picture on analyst estimates for the company? Then our free report on Weibo will help you uncover what's on the horizon.

How Is Weibo's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Weibo's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 34% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 6.4% each year over the next three years. That's shaping up to be materially lower than the 11% each year growth forecast for the broader market.

In light of this, it's understandable that Weibo's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Having almost fallen off a cliff, Weibo's share price has pulled its P/E way down as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Weibo's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Weibo with six simple checks.

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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