With a price-to-earnings (or "P/E") ratio of 23.2x Guangdong Hotata Technology Group Co.,Ltd. (SHSE:603848) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 62x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Guangdong Hotata Technology GroupLtd has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Check out our latest analysis for Guangdong Hotata Technology GroupLtd
How Is Guangdong Hotata Technology GroupLtd's Growth Trending?
Guangdong Hotata Technology GroupLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
Retrospectively, the last year delivered a decent 11% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 11% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 34% over the next year. That's shaping up to be materially lower than the 43% growth forecast for the broader market.
In light of this, it's understandable that Guangdong Hotata Technology GroupLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Guangdong Hotata Technology GroupLtd's P/E?
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of Guangdong Hotata Technology GroupLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
It is also worth noting that we have found 1 warning sign for Guangdong Hotata Technology GroupLtd that you need to take into consideration.
If you're unsure about the strength of Guangdong Hotata Technology GroupLtd'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.