Earnings Working Against Guangdong Hongtu Technology (holdings) Co.,Ltd.'s (SZSE:002101) Share Price

Guangdong Hongtu Technology (holdings) Co.,Ltd.'s (SZSE:002101) price-to-earnings (or "P/E") ratio of 18.5x might 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 32x and even P/E's above 61x 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.

Recent times haven't been advantageous for Guangdong Hongtu Technology (holdings)Ltd as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Guangdong Hongtu Technology (holdings)Ltd

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Is There Any Growth For Guangdong Hongtu Technology (holdings)Ltd?

Guangdong Hongtu Technology (holdings)Ltd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 14%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 22% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 14% per annum during the coming three years according to the dual analysts following the company. That's shaping up to be materially lower than the 19% per annum growth forecast for the broader market.

In light of this, it's understandable that Guangdong Hongtu Technology (holdings)Ltd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Guangdong Hongtu Technology (holdings)Ltd's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Guangdong Hongtu Technology (holdings)Ltd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Guangdong Hongtu Technology (holdings)Ltd is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Guangdong Hongtu Technology (holdings)Ltd, 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.