KEBODA TECHNOLOGY Co., Ltd.'s (SHSE:603786) 25% Price Boost Is Out Of Tune With Earnings

The KEBODA TECHNOLOGY Co., Ltd. (SHSE:603786) share price has done very well over the last month, posting an excellent gain of 25%. Looking back a bit further, it's encouraging to see the stock is up 39% in the last year.

After such a large jump in price, KEBODA TECHNOLOGY's price-to-earnings (or "P/E") ratio of 43.7x might make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 32x and even P/E's below 20x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

With earnings growth that's superior to most other companies of late, KEBODA TECHNOLOGY has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for KEBODA TECHNOLOGY

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

Is There Enough Growth For KEBODA TECHNOLOGY?

The only time you'd be truly comfortable seeing a P/E as high as KEBODA TECHNOLOGY's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 43% gain to the company's bottom line. EPS has also lifted 29% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 24% per annum over the next three years. That's shaping up to be similar to the 26% each year growth forecast for the broader market.

With this information, we find it interesting that KEBODA TECHNOLOGY is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On KEBODA TECHNOLOGY's P/E

KEBODA TECHNOLOGY's P/E is getting right up there since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of KEBODA TECHNOLOGY's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for KEBODA TECHNOLOGY that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.