Finework (Hu Nan) New Energy Technology Co., Ltd (SZSE:301232) Shares Fly 32% But Investors Aren't Buying For Growth

Those holding Finework (Hu Nan) New Energy Technology Co., Ltd (SZSE:301232) shares would be relieved that the share price has rebounded 32% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, Finework (Hu Nan) New Energy Technology may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.9x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

For example, consider that Finework (Hu Nan) New Energy Technology's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Finework (Hu Nan) New Energy Technology

Although there are no analyst estimates available for Finework (Hu Nan) New Energy Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Finework (Hu Nan) New Energy Technology?

In order to justify its P/E ratio, Finework (Hu Nan) New Energy Technology would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 5.8% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 49% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's an unpleasant look.

With this information, we are not surprised that Finework (Hu Nan) New Energy Technology is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

Finework (Hu Nan) New Energy Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Finework (Hu Nan) New Energy Technology maintains its low P/E on the weakness of its sliding earnings over the medium-term, 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 the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Finework (Hu Nan) New Energy Technology (at least 1 which can't be ignored), and understanding them should be part of your investment process.

Of course, you might also be able to find a better stock than Finework (Hu Nan) New Energy Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.