Meihua International Medical Technologies Co., Ltd. (NASDAQ:MHUA) Shares Fly 26% But Investors Aren't Buying For Growth

Meihua International Medical Technologies Co., Ltd. (NASDAQ:MHUA) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 16x, you may still consider Meihua International Medical Technologies as an attractive investment with its 8.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

The earnings growth achieved at Meihua International Medical Technologies over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Meihua International Medical Technologies

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 Meihua International Medical Technologies' earnings, revenue and cash flow.

How Is Meihua International Medical Technologies' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Meihua International Medical Technologies' to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 10.0% last year. The latest three year period has also seen a 13% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.5% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Meihua International Medical Technologies 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 Key Takeaway

Meihua International Medical Technologies' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Meihua International Medical Technologies 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - Meihua International Medical Technologies has 2 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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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.