Hubei Forbon Technology Co.,Ltd.'s (SZSE:300387) Price Is Right But Growth Is Lacking After Shares Rocket 25%

The Hubei Forbon Technology Co.,Ltd. (SZSE:300387) share price has done very well over the last month, posting an excellent gain of 25%. Looking back a bit further, it's encouraging to see the stock is up 73% in the last year.

In spite of the firm bounce in price, Hubei Forbon TechnologyLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 29.4x, since almost half of all companies in China have P/E ratios greater than 39x and even P/E's higher than 75x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Hubei Forbon TechnologyLtd as its earnings have risen in spite of the market's earnings going into reverse. 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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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Hubei Forbon TechnologyLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. The latest three year period has also seen an excellent 200% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 23% during the coming year according to the only analyst following the company. Meanwhile, the rest of the market is forecast to expand by 37%, which is noticeably more attractive.

In light of this, it's understandable that Hubei Forbon TechnologyLtd'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 Final Word

Despite Hubei Forbon TechnologyLtd's shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Hubei Forbon 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.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Hubei Forbon TechnologyLtd with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Hubei Forbon TechnologyLtd, 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.