Hangzhou Huawang New Material Technology Co.,Ltd.'s (SHSE:605377) Prospects Need A Boost To Lift Shares

Hangzhou Huawang New Material Technology Co.,Ltd.'s (SHSE:605377) price-to-earnings (or "P/E") ratio of 13.2x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 31x and even P/E's above 56x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Hangzhou Huawang New Material TechnologyLtd 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Hangzhou Huawang New Material TechnologyLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hangzhou Huawang New Material TechnologyLtd.

How Is Hangzhou Huawang New Material TechnologyLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Hangzhou Huawang New Material TechnologyLtd's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a decent 8.3% gain to the company's bottom line. The latest three year period has also seen an excellent 49% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 22% as estimated by the seven analysts watching the company. With the market predicted to deliver 42% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Hangzhou Huawang New Material TechnologyLtd is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Hangzhou Huawang New Material TechnologyLtd 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.

Having said that, be aware Hangzhou Huawang New Material TechnologyLtd is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

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.