Hangzhou IECHO Science&Technology Co., Ltd. (SHSE:688092) Shares Fly 32% But Investors Aren't Buying For Growth

Simply Wall St · 10/18 23:07

Hangzhou IECHO Science&Technology Co., Ltd. (SHSE:688092) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 7.6% isn't as impressive.

Even after such a large jump in price, Hangzhou IECHO Science&Technology may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.2x, since almost half of all companies in China have P/E ratios greater than 32x 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.

Hangzhou IECHO Science&Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Hangzhou IECHO Science&Technology

pe-multiple-vs-industry
SHSE:688092 Price to Earnings Ratio vs Industry October 18th 2024
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 Hangzhou IECHO Science&Technology's earnings, revenue and cash flow.

How Is Hangzhou IECHO Science&Technology's Growth Trending?

Hangzhou IECHO Science&Technology'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 an exceptional 57% gain to the company's bottom line. The latest three year period has also seen an excellent 31% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Hangzhou IECHO Science&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 Key Takeaway

Hangzhou IECHO Science&Technology'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 Hangzhou IECHO Science&Technology revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Hangzhou IECHO Science&Technology has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than Hangzhou IECHO Science&Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.