Hangzhou Sunrise Technology Co.,Ltd.'s (SZSE:300360) Shares Lagging The Market But So Is The Business

Hangzhou Sunrise Technology Co.,Ltd.'s (SZSE:300360) price-to-earnings (or "P/E") ratio of 13.5x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 28x and even P/E's above 52x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Hangzhou Sunrise TechnologyLtd as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive 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 out of favour.

See our latest analysis for Hangzhou Sunrise TechnologyLtd

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

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Hangzhou Sunrise TechnologyLtd's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. Pleasingly, EPS has also lifted 95% in aggregate from three years ago, partly 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 12% per annum during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 24% each year growth forecast for the broader market.

With this information, we can see why Hangzhou Sunrise TechnologyLtd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Hangzhou Sunrise TechnologyLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Hangzhou Sunrise TechnologyLtd, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Hangzhou Sunrise TechnologyLtd, 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.

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