Hitevision Co., Ltd. (SZSE:002955) Doing What It Can To Lift Shares

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider Hitevision Co., Ltd. (SZSE:002955) as an attractive investment with its 16.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times haven't been advantageous for Hitevision 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.

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Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Hitevision's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's bottom line. Even so, admirably EPS has lifted 134% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 21% each year over the next three years. With the market only predicted to deliver 19% each year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Hitevision's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

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 Hitevision's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Hitevision you should be aware of.

If these risks are making you reconsider your opinion on Hitevision, 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.