Investors Appear Satisfied With KEBODA TECHNOLOGY Co., Ltd.'s (SHSE:603786) Prospects As Shares Rocket 26%

The KEBODA TECHNOLOGY Co., Ltd. (SHSE:603786) share price has done very well over the last month, posting an excellent gain of 26%. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about KEBODA TECHNOLOGY's P/E ratio of 39.8x, since the median price-to-earnings (or "P/E") ratio in China is also close to 36x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

KEBODA TECHNOLOGY certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. 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 not quite in favour.

Check out our latest analysis for KEBODA TECHNOLOGY

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Does Growth Match The P/E?

In order to justify its P/E ratio, KEBODA TECHNOLOGY would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 41% last year. The latest three year period has also seen an excellent 62% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 36% as estimated by the ten analysts watching the company. That's shaping up to be similar to the 38% growth forecast for the broader market.

With this information, we can see why KEBODA TECHNOLOGY is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

KEBODA TECHNOLOGY's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that KEBODA TECHNOLOGY maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for KEBODA TECHNOLOGY with six simple checks.

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

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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.