8VI Holdings Limited's (ASX:8VI) 42% Jump Shows Its Popularity With Investors

By
Simply Wall St
Published
June 09, 2021
ASX:8VI
Source: Shutterstock

8VI Holdings Limited (ASX:8VI) shares have continued their recent momentum with a 42% gain in the last month alone. The last 30 days were the cherry on top of the stock's 886% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, given close to half the companies in Australia have price-to-earnings ratios (or "P/E's") below 20x, you may consider 8VI Holdings as a stock to potentially avoid with its 25.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's lofty.

Recent times have been quite advantageous for 8VI Holdings as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for 8VI Holdings

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ASX:8VI Price Based on Past Earnings June 9th 2021
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on 8VI Holdings will help you shine a light on its historical performance.

How Is 8VI Holdings' Growth Trending?

In order to justify its P/E ratio, 8VI Holdings would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 442% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 619% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that 8VI Holdings' P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Key Takeaway

The large bounce in 8VI Holdings' shares has lifted the company's P/E to a fairly high level. 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 8VI Holdings revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - 8VI Holdings has 3 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than 8VI Holdings. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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