SKS Technologies Group Limited (ASX:SKS) Looks Just Right With A 28% Price Jump

SKS Technologies Group Limited (ASX:SKS) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 119% in the last year.

After such a large jump in price, SKS Technologies Group's price-to-earnings (or "P/E") ratio of 35.1x might make it look like a strong sell right now compared to the market in Australia, where around half of the companies have P/E ratios below 21x and even P/E's below 12x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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With earnings growth that's superior to most other companies of late, SKS Technologies Group has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. 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

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SKS Technologies Group.

Is There Enough Growth For SKS Technologies Group?

In order to justify its P/E ratio, SKS Technologies Group would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 107%. The strong recent performance means it was also able to grow EPS by 337% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 25% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 18% each year, which is noticeably less attractive.

With this information, we can see why SKS Technologies Group is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On SKS Technologies Group's P/E

Shares in SKS Technologies Group have built up some good momentum lately, which has really inflated its P/E. 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.

As we suspected, our examination of SKS Technologies Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for SKS Technologies Group with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on SKS Technologies Group, 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.