Keli Sensing Technology (Ningbo) Co.,Ltd.'s (SHSE:603662) 26% Price Boost Is Out Of Tune With Earnings

Keli Sensing Technology (Ningbo) Co.,Ltd. (SHSE:603662) shares have continued their recent momentum with a 26% gain in the last month alone. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, Keli Sensing Technology (Ningbo)Ltd may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 39.2x, since almost half of all companies in China have P/E ratios under 34x and even P/E's lower than 20x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times have been pleasing for Keli Sensing Technology (Ningbo)Ltd as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Keli Sensing Technology (Ningbo)Ltd

Keen to find out how analysts think Keli Sensing Technology (Ningbo)Ltd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Keli Sensing Technology (Ningbo)Ltd?

The only time you'd be truly comfortable seeing a P/E as high as Keli Sensing Technology (Ningbo)Ltd's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 18% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 5.0% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 33% over the next year. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

In light of this, it's alarming that Keli Sensing Technology (Ningbo)Ltd's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Keli Sensing Technology (Ningbo)Ltd's P/E

Keli Sensing Technology (Ningbo)Ltd shares have received a push in the right direction, but its P/E is elevated too. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Keli Sensing Technology (Ningbo)Ltd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Keli Sensing Technology (Ningbo)Ltd that you need to take into consideration.

You might be able to find a better investment than Keli Sensing Technology (Ningbo)Ltd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.