Despite an already strong run, Hamaton Automotive Technology Co., Ltd (SZSE:300643) shares have been powering on, with a gain of 32% in the last thirty days. The last 30 days bring the annual gain to a very sharp 70%.

Although its price has surged higher, Hamaton Automotive Technology’s price-to-earnings (or “P/E”) ratio of 33.9x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 38x and even P/E’s above 75x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it’s justified.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part – they are all under $10bn in marketcap – there is still time to get in early.

Earnings have risen firmly for Hamaton Automotive Technology recently, which is pleasing to see. It might be that many expect the respectable 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.

See our latest analysis for Hamaton Automotive Technology

Although there are no analyst estimates available for Hamaton Automotive Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Hamaton Automotive Technology’s Growth Trending?

Hamaton Automotive 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.

Retrospectively, the last year delivered a decent 13% gain to the company’s bottom line. The solid recent performance means it was also able to grow EPS by 6.1% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 36% growth in the next 12 months, the company’s momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it’s understandable that Hamaton Automotive Technology’s P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Hamaton Automotive Technology’s P/E

Despite Hamaton Automotive Technology’s shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of Hamaton Automotive Technology revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn’t great enough to justify a higher P/E ratio. 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 Hamaton Automotive Technology you should be aware of.

If you’re unsure about the strength of Hamaton Automotive Technology’s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.