Earnings Tell The Story For Hymson Laser Technology Group Co.,Ltd. (SHSE:688559) As Its Stock Soars 25%

Hymson Laser Technology Group Co.,Ltd. (SHSE:688559) shares have continued their recent momentum with a 25% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

After such a large jump in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 36x, you may consider Hymson Laser Technology GroupLtd as a stock to avoid entirely with its 59.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings that are retreating more than the market's of late, Hymson Laser Technology GroupLtd has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Hymson Laser Technology GroupLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hymson Laser Technology GroupLtd.

Does Growth Match The High P/E?

Hymson Laser Technology GroupLtd's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 64% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 46% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 90% as estimated by the three analysts watching the company. With the market only predicted to deliver 39%, the company is positioned for a stronger earnings result.

With this information, we can see why Hymson Laser Technology GroupLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Hymson Laser Technology GroupLtd's P/E?

Hymson Laser Technology GroupLtd's 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 Hymson Laser Technology GroupLtd 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. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 5 warning signs for Hymson Laser Technology GroupLtd (3 shouldn't be ignored!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.