Hoymiles Power Electronics Inc.'s (SHSE:688032) 29% Jump Shows Its Popularity With Investors

Hoymiles Power Electronics Inc. (SHSE:688032) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.

After such a large jump in price, Hoymiles Power Electronics may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 42.3x, since almost half of all companies in China have P/E ratios under 27x and even P/E's lower than 16x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Hoymiles Power Electronics' earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Hoymiles Power Electronics

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Is There Enough Growth For Hoymiles Power Electronics?

The only time you'd be truly comfortable seeing a P/E as steep as Hoymiles Power Electronics' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 149% 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.

Turning to the outlook, the next three years should generate growth of 38% each year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 24% per annum growth forecast for the broader market.

In light of this, it's understandable that Hoymiles Power Electronics' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Hoymiles Power Electronics' P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Hoymiles Power Electronics maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 4 warning signs we've spotted with Hoymiles Power Electronics (including 2 which shouldn't be ignored).

If these risks are making you reconsider your opinion on Hoymiles Power Electronics, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com