Meihua International Medical Technologies Co., Ltd.'s (NASDAQ:MHUA) Shares Bounce 28% But Its Business Still Trails The Market

Meihua International Medical Technologies Co., Ltd. (NASDAQ:MHUA) shareholders have had their patience rewarded with a 28% share price jump in the last month. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 71% share price drop in the last twelve months.

Although its price has surged higher, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Meihua International Medical Technologies as an attractive investment with its 8.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Meihua International Medical Technologies' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Meihua International Medical Technologies

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

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.

Retrospectively, the last year delivered a frustrating 67% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 65% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 10% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that Meihua International Medical Technologies' 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Meihua International Medical Technologies' P/E

The latest share price surge wasn't enough to lift Meihua International Medical Technologies' P/E close to the market median. 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.

As we suspected, our examination of Meihua International Medical Technologies revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. 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.

Plus, you should also learn about these 4 warning signs we've spotted with Meihua International Medical Technologies (including 1 which is significant).

If these risks are making you reconsider your opinion on Meihua International Medical Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.