Kangping Technology (Suzhou) Co., Ltd.'s (SZSE:300907) 28% Share Price Surge Not Quite Adding Up

Kangping Technology (Suzhou) Co., Ltd. (SZSE:300907) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 72%.

In spite of the firm bounce in price, it's still not a stretch to say that Kangping Technology (Suzhou)'s price-to-earnings (or "P/E") ratio of 35.5x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 39x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's exceedingly strong of late, Kangping Technology (Suzhou) has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 Kangping Technology (Suzhou)

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Kangping Technology (Suzhou) will help you shine a light on its historical performance.

Is There Some Growth For Kangping Technology (Suzhou)?

Kangping Technology (Suzhou)'s P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 85%. The latest three year period has also seen an excellent 53% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's noticeably less attractive on an annualised basis.

With this information, we find it interesting that Kangping Technology (Suzhou) is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

What We Can Learn From Kangping Technology (Suzhou)'s P/E?

Kangping Technology (Suzhou)'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.

Our examination of Kangping Technology (Suzhou) revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Kangping Technology (Suzhou) that you should be aware of.

If these risks are making you reconsider your opinion on Kangping Technology (Suzhou), 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.