Kangping Technology (Suzhou) Co., Ltd.'s (SZSE:300907) 35% Share Price Surge Not Quite Adding Up

Kangping Technology (Suzhou) Co., Ltd. (SZSE:300907) shareholders have had their patience rewarded with a 35% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 3.8% isn't as attractive.

In spite of the firm bounce in price, there still wouldn't be many who think Kangping Technology (Suzhou)'s price-to-earnings (or "P/E") ratio of 33.5x is worth a mention when the median P/E in China is similar at about 34x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been quite advantageous for Kangping Technology (Suzhou) as its earnings have been rising very briskly. 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)?

In order to justify its P/E ratio, Kangping Technology (Suzhou) would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 71% 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 6.4% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's an unpleasant look.

With this information, we find it concerning that Kangping Technology (Suzhou) is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

Kangping Technology (Suzhou)'s stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Kangping Technology (Suzhou) currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Kangping Technology (Suzhou) (1 is a bit concerning!) that you need to be mindful of.

If you're unsure about the strength of Kangping Technology (Suzhou)'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.