Wuhan East Lake High Technology Group Co., Ltd. (SHSE:600133) Shares Fly 32% But Investors Aren't Buying For Growth

Wuhan East Lake High Technology Group Co., Ltd. (SHSE:600133) shareholders are no doubt pleased to see that the share price has bounced 32% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 44%.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Wuhan East Lake High Technology Group as a highly attractive investment with its 10.1x 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.

Recent times have been quite advantageous for Wuhan East Lake High Technology Group as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, 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.

See our latest analysis for Wuhan East Lake High Technology Group

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Wuhan East Lake High Technology Group's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Wuhan East Lake High Technology Group would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 108% last year. The latest three year period has also seen a 12% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Wuhan East Lake High Technology Group is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Wuhan East Lake High Technology Group's recent share price jump still sees its P/E sitting firmly flat on the ground. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Wuhan East Lake High Technology Group maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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 rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Wuhan East Lake High Technology Group you should be aware of.

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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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.