Despite an already strong run, Hebei Huatong Wires and Cables Group Co., Ltd. (SHSE:605196) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 61% in the last year.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may still consider Hebei Huatong Wires and Cables Group as an attractive investment with its 17.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Hebei Huatong Wires and Cables Group has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

How Is Hebei Huatong Wires and Cables Group's Growth Trending?

In order to justify its P/E ratio, Hebei Huatong Wires and Cables Group would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 8.7%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 186% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 42% during the coming year according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 40%, which is not materially different.

In light of this, it's peculiar that Hebei Huatong Wires and Cables Group's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Hebei Huatong Wires and Cables Group's P/E?

The latest share price surge wasn't enough to lift Hebei Huatong Wires and Cables Group's 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.

We've established that Hebei Huatong Wires and Cables Group currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Before you take the next step, you should know about the 3 warning signs for Hebei Huatong Wires and Cables Group (2 shouldn't be ignored!) that we have uncovered.

If these risks are making you reconsider your opinion on Hebei Huatong Wires and Cables Group, 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.