Optimistic Investors Push Meilleure Health International Industry Group Limited (HKG:2327) Shares Up 32% But Growth Is Lacking

Those holding Meilleure Health International Industry Group Limited (HKG:2327) shares would be relieved that the share price has rebounded 32% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 42% in the last twelve months.

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 9x, you may consider Meilleure Health International Industry Group as a stock to avoid entirely with its 15.5x 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.

Meilleure Health International Industry Group certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Meilleure Health International Industry Group

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Meilleure Health International Industry Group's earnings, revenue and cash flow.

How Is Meilleure Health International Industry Group's Growth Trending?

In order to justify its P/E ratio, Meilleure Health International Industry Group would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 130% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 49% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 20% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that Meilleure Health International Industry Group's P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Meilleure Health International Industry Group's P/E

The strong share price surge has got Meilleure Health International Industry Group's P/E rushing to great heights as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Meilleure Health International Industry Group currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Meilleure Health International Industry Group (at least 2 which are a bit concerning), and understanding these should be part of your investment process.

You might be able to find a better investment than Meilleure Health International Industry Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.