Why Investors Shouldn't Be Surprised By Hangzhou Sunrise Technology Co.,Ltd.'s (SZSE:300360) Low P/E

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 37x, you may consider Hangzhou Sunrise Technology Co.,Ltd. (SZSE:300360) as a highly attractive investment with its 12.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Hangzhou Sunrise TechnologyLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View 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.

How Is Hangzhou Sunrise TechnologyLtd's Growth Trending?

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

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 62% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 0.1% as estimated by the five analysts watching the company. With the market predicted to deliver 41% growth , that's a disappointing outcome.

With this information, we are not surprised that Hangzhou Sunrise TechnologyLtd is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Hangzhou Sunrise TechnologyLtd's P/E?

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.

We've established that Hangzhou Sunrise TechnologyLtd maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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

Of course, you might also be able to find a better stock than Hangzhou Sunrise TechnologyLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.