The Market Doesn't Like What It Sees From Hangzhou Hikvision Digital Technology Co., Ltd.'s (SZSE:002415) Earnings Yet

With a price-to-earnings (or "P/E") ratio of 22.7x Hangzhou Hikvision Digital Technology Co., Ltd. (SZSE:002415) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 73x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Hangzhou Hikvision Digital Technology has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 out of favour.

Check out our latest analysis for Hangzhou Hikvision Digital Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hangzhou Hikvision Digital Technology.

Is There Any Growth For Hangzhou Hikvision Digital Technology?

There's an inherent assumption that a company should underperform the market for P/E ratios like Hangzhou Hikvision Digital Technology's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.0% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 16% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 21% as estimated by the analysts watching the company. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

In light of this, it's understandable that Hangzhou Hikvision Digital Technology's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Hangzhou Hikvision Digital Technology's P/E

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 Hangzhou Hikvision Digital Technology maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Hangzhou Hikvision Digital Technology that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.