It's not a stretch to say that Hoshine Silicon Industry Co., Ltd.'s (SHSE:603260) price-to-earnings (or "P/E") ratio of 24.8x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 27x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Hoshine Silicon Industry could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Growth For Hoshine Silicon Industry?

The only time you'd be comfortable seeing a P/E like Hoshine Silicon Industry's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 51% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 17% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 34% per annum as estimated by the six analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 23% per annum, which is noticeably less attractive.

In light of this, it's curious that Hoshine Silicon Industry's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

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.

Our examination of Hoshine Silicon Industry's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Hoshine Silicon Industry (2 don't sit too well with us) you should be aware of.

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

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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.