PW Medtech Group Limited's (HKG:1358) Shares Climb 31% But Its Business Is Yet to Catch Up

The PW Medtech Group Limited (HKG:1358) share price has done very well over the last month, posting an excellent gain of 31%. Taking a wider view, although not as strong as the last month, the full year gain of 25% is also fairly reasonable.

In spite of the firm bounce in price, it's still not a stretch to say that PW Medtech Group's price-to-earnings (or "P/E") ratio of 11.9x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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It looks like earnings growth has deserted PW Medtech Group recently, which is not something to boast about. It might be that many expect the uninspiring earnings performance to only match most other companies at best over the coming period, which has kept the P/E from rising. If not, then existing shareholders may be feeling hopeful about the future direction of the share price.

View our latest analysis for PW Medtech 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 PW Medtech Group's earnings, revenue and cash flow.

How Is PW Medtech Group's Growth Trending?

In order to justify its P/E ratio, PW Medtech Group would need to produce growth that's similar to the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 78% overall from three years ago. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 19% shows it's an unpleasant look.

With this information, we find it concerning that PW Medtech Group is trading at a fairly similar P/E to the market. 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 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 PW Medtech Group's P/E

Its shares have lifted substantially and now PW Medtech Group's P/E is also back up to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that PW Medtech Group currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Having said that, be aware PW Medtech Group is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.