Huobi Technology Holdings Limited (HKG:1611) Stocks Pounded By 32% But Not Lagging Market On Growth Or Pricing

Unfortunately for some shareholders, the Huobi Technology Holdings Limited (HKG:1611) share price has dived 32% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 76% loss during that time.

Although its price has dipped substantially, given close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 8x, you may still consider Huobi Technology Holdings as a stock to avoid entirely with its 29.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

For example, consider that Huobi Technology Holdings' financial performance has been poor lately as it's earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Huobi Technology Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Huobi Technology Holdings will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Huobi Technology Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 858% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 17% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Huobi Technology Holdings' P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Huobi Technology Holdings' P/E

A significant share price dive has done very little to deflate Huobi Technology Holdings' very lofty 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 Huobi Technology Holdings maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Huobi Technology Holdings you should know about.

Of course, you might also be able to find a better stock than Huobi Technology Holdings. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.