Homeland Interactive Technology Ltd. (HKG:3798) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 66%.

In spite of the firm bounce in price, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 9x, you may still consider Homeland Interactive Technology as an attractive investment with its 6.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

The earnings growth achieved at Homeland Interactive Technology over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Homeland Interactive Technology

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Homeland Interactive Technology would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. Pleasingly, EPS has also lifted 52% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Homeland Interactive Technology's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Homeland Interactive Technology's P/E?

Despite Homeland Interactive Technology's shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Homeland Interactive Technology maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Homeland Interactive Technology you should be aware of, and 1 of them is a bit unpleasant.

If you're unsure about the strength of Homeland Interactive Technology'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.