Shenzhen H&T Intelligent Control Co.Ltd (SZSE:002402) Stock Rockets 33% But Many Are Still Ignoring The Company

Despite an already strong run, Shenzhen H&T Intelligent Control Co.Ltd (SZSE:002402) shares have been powering on, with a gain of 33% in the last thirty days. 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, you could still be forgiven for feeling indifferent about Shenzhen H&T Intelligent ControlLtd's P/E ratio of 37.1x, since the median price-to-earnings (or "P/E") ratio in China is also close to 36x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings that are retreating more than the market's of late, Shenzhen H&T Intelligent ControlLtd has been very sluggish. One possibility is that the P/E is moderate because investors think the company's earnings trend will eventually fall in line with most others in the market. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Shenzhen H&T Intelligent ControlLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen H&T Intelligent ControlLtd.

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Shenzhen H&T Intelligent ControlLtd would need to produce growth that's similar to the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 20%. As a result, earnings from three years ago have also fallen 38% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 106% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

With this information, we find it interesting that Shenzhen H&T Intelligent ControlLtd is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Shenzhen H&T Intelligent ControlLtd's P/E?

Shenzhen H&T Intelligent ControlLtd's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

We've established that Shenzhen H&T Intelligent ControlLtd 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Shenzhen H&T Intelligent ControlLtd that you need to be mindful of.

If you're unsure about the strength of Shenzhen H&T Intelligent ControlLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.