Hwaway Technology Corporation Limited's (SZSE:001380) Shares Leap 25% Yet They're Still Not Telling The Full Story

Hwaway Technology Corporation Limited (SZSE:001380) shareholders have had their patience rewarded with a 25% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 44% in the last year.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 36x, you may still consider Hwaway Technology as an attractive investment with its 24.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Earnings have risen firmly for Hwaway Technology recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. 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.

View our latest analysis for Hwaway Technology

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hwaway Technology will help you shine a light on its historical performance.

Is There Any Growth For Hwaway Technology?

In order to justify its P/E ratio, Hwaway Technology would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 9.6% last year. This was backed up an excellent period prior to see EPS up by 152% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 38% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

With this information, we find it odd that Hwaway Technology is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

Despite Hwaway Technology's shares building up a head of steam, its P/E still lags most other companies. 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 Hwaway Technology currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Hwaway Technology (1 is a bit unpleasant!) that you should be aware of before investing here.

If you're unsure about the strength of Hwaway Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.