Investors Still Aren't Entirely Convinced By Shanghai Hi-Tech Control System Co., Ltd's (SZSE:002184) Earnings Despite 35% Price Jump

Those holding Shanghai Hi-Tech Control System Co., Ltd (SZSE:002184) shares would be relieved that the share price has rebounded 35% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that Shanghai Hi-Tech Control System's price-to-earnings (or "P/E") ratio of 27.7x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 30x. 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 Hi-Tech Control System 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Shanghai Hi-Tech Control System

Keen to find out how analysts think Shanghai Hi-Tech Control System's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Growth For Shanghai Hi-Tech Control System?

There's an inherent assumption that a company should be matching the market for P/E ratios like Shanghai Hi-Tech Control System's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 31% last year. Pleasingly, EPS has also lifted 40% in aggregate from three years ago, thanks to the last 12 months of growth. 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 65% during the coming year according to the one analyst following the company. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

In light of this, it's curious that Shanghai Hi-Tech Control System's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Shanghai Hi-Tech Control System's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

We've established that Shanghai Hi-Tech Control System currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market 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 a boost to the share price.

Having said that, be aware Shanghai Hi-Tech Control System is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.