Further Upside For HMT (Xiamen) New Technical Materials Co., Ltd (SHSE:603306) Shares Could Introduce Price Risks After 28% Bounce

Despite an already strong run, HMT (Xiamen) New Technical Materials Co., Ltd (SHSE:603306) shares have been powering on, with a gain of 28% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

Although its price has surged higher, HMT (Xiamen) New Technical Materials' price-to-earnings (or "P/E") ratio of 30.8x 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 35x and even P/E's above 69x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

HMT (Xiamen) New Technical Materials certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

See our latest analysis for HMT (Xiamen) New Technical Materials

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Does Growth Match The Low P/E?

HMT (Xiamen) New Technical Materials' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 39% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 48% during the coming year according to the two analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 42%, which is noticeably less attractive.

With this information, we find it odd that HMT (Xiamen) New Technical Materials is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On HMT (Xiamen) New Technical Materials' P/E

Despite HMT (Xiamen) New Technical Materials' shares building up a head of steam, its P/E still lags most other companies. 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 HMT (Xiamen) New Technical Materials currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about these 2 warning signs we've spotted with HMT (Xiamen) New Technical Materials.

If you're unsure about the strength of HMT (Xiamen) New Technical Materials' 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.