SKS Technologies Group Limited (ASX:SKS) Looks Just Right With A 31% Price Jump

SKS Technologies Group Limited (ASX:SKS) shares have continued their recent momentum with a 31% gain in the last month alone. The annual gain comes to 101% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, SKS Technologies Group may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 23.8x, since almost half of all companies in Australia have P/E ratios under 19x and even P/E's lower than 11x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for SKS Technologies Group as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for SKS Technologies Group

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Is There Enough Growth For SKS Technologies Group?

There's an inherent assumption that a company should outperform the market for P/E ratios like SKS Technologies Group's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 107%. The latest three year period has also seen an excellent 343% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 17% per year as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 15% per year, which is noticeably less attractive.

In light of this, it's understandable that SKS Technologies Group's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

SKS Technologies Group shares have received a push in the right direction, but its P/E is elevated too. 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 SKS Technologies Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for SKS Technologies Group that you should be aware of.

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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.