Guangdong Hotata Technology Group Co.,Ltd. (SHSE:603848) Stock Catapults 26% Though Its Price And Business Still Lag The Market

Guangdong Hotata Technology Group Co.,Ltd. (SHSE:603848) shares have continued their recent momentum with a 26% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 5.7% isn't as impressive.

In spite of the firm bounce in price, Guangdong Hotata Technology GroupLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.7x, since almost half of all companies in China have P/E ratios greater than 36x and even P/E's higher than 70x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Guangdong Hotata Technology GroupLtd's negative earnings growth of late has neither been better nor worse than most other companies. It might be that many expect the company's earnings performance to degrade further, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. In saying that, existing shareholders may feel hopeful about the share price if the company's earnings continue tracking the market.

See our latest analysis for Guangdong Hotata Technology GroupLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Guangdong Hotata Technology GroupLtd.

How Is Guangdong Hotata Technology GroupLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Guangdong Hotata Technology GroupLtd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 1.9% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 15% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 33% during the coming year according to the four analysts following the company. With the market predicted to deliver 39% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Guangdong Hotata Technology GroupLtd'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.

The Key Takeaway

Guangdong Hotata Technology GroupLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Hotata Technology GroupLtd 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Guangdong Hotata Technology GroupLtd with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.