Hitech Corporation Limited (NSE:HITECHCORP) Stock Catapults 26% Though Its Price And Business Still Lag The Market

Hitech Corporation Limited (NSE:HITECHCORP) shareholders have had their patience rewarded with a 26% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 24% is also fairly reasonable.

In spite of the firm bounce in price, Hitech may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 26.7x, since almost half of all companies in India have P/E ratios greater than 35x and even P/E's higher than 66x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Hitech 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.

Check out our latest analysis for Hitech

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 Hitech's earnings, revenue and cash flow.

Is There Any Growth For Hitech?

The only time you'd be truly comfortable seeing a P/E as low as Hitech's is when the company's growth is on track to lag the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 38%. The last three years don't look nice either as the company has shrunk EPS by 41% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 26% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that Hitech's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

Hitech's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of Hitech revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 4 warning signs for Hitech you should be aware of.

If you're unsure about the strength of Hitech's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.