The Market Lifts HMT (Xiamen) New Technical Materials Co., Ltd (SHSE:603306) Shares 26% But It Can Do More

HMT (Xiamen) New Technical Materials Co., Ltd (SHSE:603306) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.

Even after such a large jump in price, HMT (Xiamen) New Technical Materials' price-to-earnings (or "P/E") ratio of 23.9x 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 28x and even P/E's above 52x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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Is There Any Growth For HMT (Xiamen) New Technical Materials?

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.

Taking a look back first, we see that the company grew earnings per share by an impressive 38% last year. The latest three year period has also seen an excellent 33% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 36% over the next year. With the market predicted to deliver 36% growth , the company is positioned for a comparable earnings result.

In light of this, it's peculiar that HMT (Xiamen) New Technical Materials' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

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

The latest share price surge wasn't enough to lift HMT (Xiamen) New Technical Materials' P/E close to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that HMT (Xiamen) New Technical Materials currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You always need to take note of risks, for example - HMT (Xiamen) New Technical Materials has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on HMT (Xiamen) New Technical Materials, 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.