Wise Living Technology Co., Ltd's (HKG:2481) Shares Bounce 39% But Its Business Still Trails The Market

Wise Living Technology Co., Ltd (HKG:2481) shares have had a really impressive month, gaining 39% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

Although its price has surged higher, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 11x, you may still consider Wise Living Technology as a highly attractive investment with its 5.1x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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As an illustration, earnings have deteriorated at Wise Living Technology over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Wise Living Technology

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

Is There Any Growth For Wise Living Technology?

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

Retrospectively, the last year delivered a frustrating 4.3% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 11% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with 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 18% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Wise Living Technology is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Wise Living Technology's P/E

Even after such a strong price move, Wise Living Technology's P/E still trails the rest of the market significantly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Wise Living Technology maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. 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.

Having said that, be aware Wise Living Technology is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

Of course, you might also be able to find a better stock than Wise Living Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios 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.