Stock Analysis

Hang Zhou Radical Energy-Saving Technology Co., Ltd.'s (SZSE:300652) Shares Bounce 34% But Its Business Still Trails The Market

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Those holding Hang Zhou Radical Energy-Saving Technology Co., Ltd. (SZSE:300652) shares would be relieved that the share price has rebounded 34% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 23% in the last twelve months.

Although its price has surged higher, Hang Zhou Radical Energy-Saving Technology's price-to-earnings (or "P/E") ratio of 17.4x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 55x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For example, consider that Hang Zhou Radical Energy-Saving Technology's 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. 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 out of favour.

Check out our latest analysis for Hang Zhou Radical Energy-Saving Technology

SZSE:300652 Price to Earnings Ratio vs Industry March 8th 2024
Although there are no analyst estimates available for Hang Zhou Radical Energy-Saving Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Hang Zhou Radical Energy-Saving Technology's Growth Trending?

In order to justify its P/E ratio, Hang Zhou Radical Energy-Saving Technology would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 20%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 66% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Hang Zhou Radical Energy-Saving Technology is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Hang Zhou Radical Energy-Saving Technology's P/E

Hang Zhou Radical Energy-Saving Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Hang Zhou Radical Energy-Saving Technology maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Hang Zhou Radical Energy-Saving Technology.

If these risks are making you reconsider your opinion on Hang Zhou Radical Energy-Saving Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether Hang Zhou Radical Energy-Saving Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.