Hubei Forbon Technology Co.,Ltd.'s (SZSE:300387) Shares Leap 40% Yet They're Still Not Telling The Full Story

Hubei Forbon Technology Co.,Ltd. (SZSE:300387) shares have continued their recent momentum with a 40% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 25% is also fairly reasonable.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may still consider Hubei Forbon TechnologyLtd as an attractive investment with its 24.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Hubei Forbon TechnologyLtd as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Hubei Forbon TechnologyLtd

Although there are no analyst estimates available for Hubei Forbon TechnologyLtd, 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 Hubei Forbon TechnologyLtd?

There's an inherent assumption that a company should underperform the market for P/E ratios like Hubei Forbon TechnologyLtd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 76% last year. Pleasingly, EPS has also lifted 151% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

With this information, we find it odd that Hubei Forbon TechnologyLtd is trading at a P/E lower than the market. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Bottom Line On Hubei Forbon TechnologyLtd's P/E

The latest share price surge wasn't enough to lift Hubei Forbon TechnologyLtd's P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Hubei Forbon TechnologyLtd revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

You always need to take note of risks, for example - Hubei Forbon TechnologyLtd has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than Hubei Forbon TechnologyLtd. 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.