What Hao Tian International Construction Investment Group Limited's (HKG:1341) 30% Share Price Gain Is Not Telling You

Despite an already strong run, Hao Tian International Construction Investment Group Limited (HKG:1341) shares have been powering on, with a gain of 30% in the last thirty days. The last 30 days were the cherry on top of the stock's 404% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, given close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 11x, you may consider Hao Tian International Construction Investment Group as a stock to avoid entirely with its 33.5x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for Hao Tian International Construction Investment Group recently, which is pleasing to see. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Hao Tian International Construction Investment Group

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hao Tian International Construction Investment Group will help you shine a light on its historical performance.

How Is Hao Tian International Construction Investment Group's Growth Trending?

Hao Tian International Construction Investment Group's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that Hao Tian International Construction Investment Group's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

Shares in Hao Tian International Construction Investment Group have built up some good momentum lately, which has really inflated its 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 Hao Tian International Construction Investment Group currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 4 warning signs for Hao Tian International Construction Investment Group (1 doesn't sit too well with us!) that we have uncovered.

You might be able to find a better investment than Hao Tian International Construction Investment Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. 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.
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