Guangzhou Haoyang Electronic Co.,Ltd. (SZSE:300833) Screens Well But There Might Be A Catch

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider Guangzhou Haoyang Electronic Co.,Ltd. (SZSE:300833) as an attractive investment with its 23.3x 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.

Recent times have been advantageous for Guangzhou Haoyang ElectronicLtd as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 Guangzhou Haoyang ElectronicLtd

Keen to find out how analysts think Guangzhou Haoyang ElectronicLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Guangzhou Haoyang ElectronicLtd's Growth Trending?

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

Retrospectively, the last year delivered a decent 5.6% gain to the company's bottom line. The latest three year period has also seen an excellent 169% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 50% over the next year. That's shaping up to be materially higher than the 39% growth forecast for the broader market.

In light of this, it's peculiar that Guangzhou Haoyang ElectronicLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

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.

Our examination of Guangzhou Haoyang ElectronicLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Guangzhou Haoyang ElectronicLtd that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.