Lenovo Shares Have Plunged by More Than a Third So Far This Year

Day Two Of Mobile World Congress 2015
Employees stand beside a display of Lenovo mobile devices in the Lenovo Group Ltd. pavilion at the Mobile World Congress in Barcelona, Spain, on Tuesday, March 3, 2015. The event, which generates several hundred million euros in revenue for the city of Barcelona each year, also means the world for a week turns its attention back to Europe for the latest in technology, despite a lagging ecosystem. Photographer: Simon Dawson/Bloomberg via Getty Images
Photograph by Simon Dawson — Bloomberg via Getty Images

Lenovo, the world’s biggest personal-computer maker, has hit some tough times—at least for its shareholders.

Shares of the Beijing-based company have fallen more than a third so far this year, dropping to HK$5.15 Thursday. It’s shares are currently trading at 7.8 times forward earnings, potentially the lowest since it debuted publicly in 1999, reported the Wall Street Journal.

Such a low price to forward earnings ratio would often signal a possible bargain for investors—but that’s likely not the case with Lenovo’s stock. It’s facing a series of tough challenges.

Some major analysts, including Morgan Stanley, have slashed earnings estimates given recent weaker-than-expected third-party shipment numbers released by the company. Personal computer shipments fell 8.5% compared to the first quarter a year ago, marking Lenovo’s fourth straight quarterly drop.

The other storm cloud brewing over Lenovo is it’s inability to gain traction in the smartphone market, which it had been trying to build up to help replace declining PC sales as that market matures. Lenovo owns the Motorola brand, which it acquired from Google in 2014. The company has been going after the mid- to low-end market but hasn’t had any big successes. Its smartphone shipments dropped 42% in the first quarter compared to a year earlier, reported the WSJ.

Lenovo has been trying to fight the declining sales with stringent cost cutting, but there’s only so far to cut before fixed costs squeeze margins and lower spending hinders innovative new products.

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