Earnings Not Telling The Story For Shanghai Hajime Advanced Material Technology Co., Ltd. (SZSE:301000) After Shares Rise 41%

Despite an already strong run, Shanghai Hajime Advanced Material Technology Co., Ltd. (SZSE:301000) shares have been powering on, with a gain of 41% in the last thirty days. The last 30 days bring the annual gain to a very sharp 70%.

In spite of the firm bounce in price, it's still not a stretch to say that Shanghai Hajime Advanced Material Technology's price-to-earnings (or "P/E") ratio of 36.6x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 37x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been pleasing for Shanghai Hajime Advanced Material Technology as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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How Is Shanghai Hajime Advanced Material Technology's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Shanghai Hajime Advanced Material Technology's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 56%. Still, incredibly EPS has fallen 3.9% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 34% during the coming year according to the one analyst following the company. With the market predicted to deliver 40% growth , the company is positioned for a weaker earnings result.

In light of this, it's curious that Shanghai Hajime Advanced Material Technology's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Shanghai Hajime Advanced Material Technology's P/E?

Its shares have lifted substantially and now Shanghai Hajime Advanced Material Technology's P/E is also back up 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 Shanghai Hajime Advanced Material Technology's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 3 warning signs for Shanghai Hajime Advanced Material Technology (2 don't sit too well with us!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Shanghai Hajime Advanced Material Technology, 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.