Hisense Home Appliances Group Co., Ltd.'s (SZSE:000921) Price Is Right But Growth Is Lacking After Shares Rocket 29%

Those holding Hisense Home Appliances Group Co., Ltd. (SZSE:000921) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 31% in the last year.

Even after such a large jump in price, Hisense Home Appliances Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12.7x, since almost half of all companies in China have P/E ratios greater than 28x and even P/E's higher than 53x 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 so limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Hisense Home Appliances Group has been doing quite well of late. 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 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 Hisense Home Appliances Group

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

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Hisense Home Appliances Group would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 47% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 97% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 7.9% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

In light of this, it's understandable that Hisense Home Appliances Group's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Hisense Home Appliances Group's P/E

Even after such a strong price move, Hisense Home Appliances Group's P/E still trails the rest of the market significantly. 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 Hisense Home Appliances Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Hisense Home Appliances Group, and understanding them should be part of your investment process.

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.