FSPG Hi-Tech CO., Ltd.'s (SZSE:000973) Shares Bounce 29% But Its Business Still Trails The Market

FSPG Hi-Tech CO., Ltd. (SZSE:000973) shares have continued their recent momentum with a 29% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.

In spite of the firm bounce in price, FSPG Hi-Tech's price-to-earnings (or "P/E") ratio of 21.4x 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 34x and even P/E's above 66x 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.

Recent times have been quite advantageous for FSPG Hi-Tech as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for FSPG Hi-Tech

Although there are no analyst estimates available for FSPG Hi-Tech, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For FSPG Hi-Tech?

The only time you'd be truly comfortable seeing a P/E as low as FSPG Hi-Tech's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 93% last year. The latest three year period has also seen an excellent 104% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that FSPG Hi-Tech's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On FSPG Hi-Tech's P/E

The latest share price surge wasn't enough to lift FSPG Hi-Tech's P/E close to the market median. 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 FSPG Hi-Tech maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - FSPG Hi-Tech has 2 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than FSPG Hi-Tech. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.