Guangzhou Haoyang Electronic Co.,Ltd. (SZSE:300833) shareholders have had their patience rewarded with a 26% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 14% over that time.

Although its price has surged higher, Guangzhou Haoyang ElectronicLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.1x, since almost half of all companies in China have P/E ratios greater than 36x and even P/E's higher than 70x 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.

Guangzhou Haoyang ElectronicLtd has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Growth For Guangzhou Haoyang ElectronicLtd?

Guangzhou Haoyang ElectronicLtd'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, dishearteningly the company's profits fell to the tune of 14%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 176% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 50% during the coming year according to the six analysts following the company. That's shaping up to be materially higher than the 39% growth forecast for the broader market.

In light of this, it's peculiar that Guangzhou Haoyang ElectronicLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Guangzhou Haoyang ElectronicLtd's P/E

Guangzhou Haoyang ElectronicLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Guangzhou Haoyang ElectronicLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Guangzhou Haoyang ElectronicLtd (1 is significant!) that you should be aware of.

If these risks are making you reconsider your opinion on Guangzhou Haoyang ElectronicLtd, 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.