Investors Still Aren't Entirely Convinced By Humanwell Healthcare (Group) Co.,Ltd.'s (SHSE:600079) Earnings Despite 42% Price Jump

Humanwell Healthcare (Group) Co.,Ltd. (SHSE:600079) shares have had a really impressive month, gaining 42% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may still consider Humanwell Healthcare (Group)Ltd as an attractive investment with its 19.1x 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 haven't been advantageous for Humanwell Healthcare (Group)Ltd as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Humanwell Healthcare (Group)Ltd

Keen to find out how analysts think Humanwell Healthcare (Group)Ltd's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

Humanwell Healthcare (Group)Ltd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 17% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 40% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 18% each year as estimated by the three analysts watching the company. That's shaping up to be similar to the 18% per annum growth forecast for the broader market.

With this information, we find it odd that Humanwell Healthcare (Group)Ltd is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Humanwell Healthcare (Group)Ltd's P/E

The latest share price surge wasn't enough to lift Humanwell Healthcare (Group)Ltd's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Humanwell Healthcare (Group)Ltd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Humanwell Healthcare (Group)Ltd you should be aware of.

You might be able to find a better investment than Humanwell Healthcare (Group)Ltd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.