The Market Lifts Hwaway Technology Corporation Limited (SZSE:001380) Shares 26% But It Can Do More

The Hwaway Technology Corporation Limited (SZSE:001380) share price has done very well over the last month, posting an excellent gain of 26%. The last 30 days bring the annual gain to a very sharp 61%.

Although its price has surged higher, Hwaway Technology's price-to-earnings (or "P/E") ratio of 27.3x 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 40x and even P/E's above 78x 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.

The earnings growth achieved at Hwaway Technology over the last year would be more than acceptable for most companies. It might be that many expect the respectable 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.

Check out our latest analysis for Hwaway Technology

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 Hwaway Technology's earnings, revenue and cash flow.

How Is Hwaway Technology's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Hwaway Technology's to be considered reasonable.

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. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's about the same on an annualised basis.

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. 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.

Our examination of Hwaway Technology revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

You need to take note of risks, for example - Hwaway Technology has 3 warning signs (and 1 which is significant) we think you should know about.

You might be able to find a better investment than Hwaway Technology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.