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Investors Don't See Light At End Of Huami Corporation's (NYSE:HMI) Tunnel

Simply Wall St
·3 mins read

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Huami Corporation (NYSE:HMI) as a highly attractive investment with its 9.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Huami has been doing a good job lately as it's been growing earnings at a solid pace. 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.

Check out our latest analysis for Huami

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Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Huami will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Huami would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 27% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 3.2% 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 Huami 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 Final Word

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.

We've established that Huami maintains its low P/E on the weakness of its recentthree-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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about this 1 warning sign we've spotted with Huami.

You might be able to find a better investment than Huami. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

This article by Simply Wall St is general in nature. 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.

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