Investors Still Aren't Entirely Convinced By Wuxi Sunlit Science and Technology Company Limited's (HKG:1289) Earnings Despite 32% Price Jump

Despite an already strong run, Wuxi Sunlit Science and Technology Company Limited (HKG:1289) shares have been powering on, with a gain of 32% in the last thirty days. The last 30 days bring the annual gain to a very sharp 92%.

Although its price has surged higher, Wuxi Sunlit Science and Technology may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 3.4x, since almost half of all companies in Hong Kong have P/E ratios greater than 10x and even P/E's higher than 20x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With earnings growth that's exceedingly strong of late, Wuxi Sunlit Science and Technology has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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?

The only time you'd be truly comfortable seeing a P/E as depressed as Wuxi Sunlit Science and Technology's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 99% last year. The strong recent performance means it was also able to grow EPS by 1,157% 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.

Comparing that to the market, which is only predicted to deliver 23% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Wuxi Sunlit Science and Technology's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Wuxi Sunlit Science and Technology's P/E

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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Wuxi Sunlit Science and Technology you should be aware of.

Of course, you might also be able to find a better stock than Wuxi Sunlit Science and Technology. 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.