Huizhou Desay SV Automotive Co., Ltd.'s (SZSE:002920) Shares Leap 28% Yet They're Still Not Telling The Full Story

Huizhou Desay SV Automotive Co., Ltd. (SZSE:002920) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 51% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Huizhou Desay SV Automotive's P/E ratio of 37.4x, since the median price-to-earnings (or "P/E") ratio in China is also close to 37x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been pleasing for Huizhou Desay SV Automotive as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Huizhou Desay SV Automotive

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How Is Huizhou Desay SV Automotive's Growth Trending?

Huizhou Desay SV Automotive's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 37% gain to the company's bottom line. Pleasingly, EPS has also lifted 188% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 33% per year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 21% per annum growth forecast for the broader market.

In light of this, it's curious that Huizhou Desay SV Automotive's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Huizhou Desay SV Automotive's P/E?

Huizhou Desay SV Automotive's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Huizhou Desay SV Automotive's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for Huizhou Desay SV Automotive you should be aware of, and 1 of them doesn't sit too well with us.

If these risks are making you reconsider your opinion on Huizhou Desay SV Automotive, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.