Even With A 28% Surge, Cautious Investors Are Not Rewarding Wuxi Sunlit Science and Technology Company Limited's (HKG:1289) Performance Completely

Wuxi Sunlit Science and Technology Company Limited (HKG:1289) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 122% in the last year.

In spite of the firm bounce in price, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 11x, you may still consider Wuxi Sunlit Science and Technology as a highly attractive investment with its 3.6x 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.

Wuxi Sunlit Science and Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

View our latest analysis for Wuxi Sunlit Science and Technology

Although there are no analyst estimates available for Wuxi Sunlit Science and Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Wuxi Sunlit Science and Technology?

Wuxi Sunlit Science and Technology's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 99% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 1,157% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 21% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Wuxi Sunlit Science and Technology is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Even after such a strong price move, Wuxi Sunlit Science and Technology's P/E still trails the rest of the market significantly. 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.

Our examination of Wuxi Sunlit Science and Technology revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Wuxi Sunlit Science and Technology that you should be aware of.

If these risks are making you reconsider your opinion on Wuxi Sunlit Science and Technology, 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.