There's No Escaping Wah Sun Handbags International Holdings Limited's (HKG:2683) Muted Earnings Despite A 32% Share Price Rise

Wah Sun Handbags International Holdings Limited (HKG:2683) shareholders have had their patience rewarded with a 32% share price jump in the last month. The last month tops off a massive increase of 148% 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 13x, you may still consider Wah Sun Handbags International Holdings as an attractive investment with its 6.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Wah Sun Handbags International Holdings certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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 that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Wah Sun Handbags International Holdings

Although there are no analyst estimates available for Wah Sun Handbags International Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Wah Sun Handbags International Holdings would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 125% gain to the company's bottom line. The latest three year period has also seen an excellent 63% overall rise in EPS, aided by its short-term performance. 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 20% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Wah Sun Handbags International Holdings is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Despite Wah Sun Handbags International Holdings' shares building up a head of steam, its P/E still lags most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Wah Sun Handbags International Holdings revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Wah Sun Handbags International Holdings that you should be aware of.

If these risks are making you reconsider your opinion on Wah Sun Handbags International Holdings, 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.