Hangzhou IECHO Science&Technology Co., Ltd. (SHSE:688092) shareholders would be excited to see that the share price has had a great month, posting a 41% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

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 23.5x, since almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 64x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for Hangzhou IECHO Science&Technology as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

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.

If we review the last year of earnings growth, the company posted a terrific increase of 57%. The strong recent performance means it was also able to grow EPS by 31% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

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 Bottom Line On Hangzhou IECHO Science&Technology's P/E

The latest share price surge wasn't enough to lift Hangzhou IECHO Science&Technology's P/E close to the market median. 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 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. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for Hangzhou IECHO Science&Technology you should be aware of.

You might be able to find a better investment than Hangzhou IECHO Science&Technology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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