Guangdong Dtech Technology Co., Ltd. (SZSE:301377) Looks Just Right With A 25% Price Jump

Despite an already strong run, Guangdong Dtech Technology Co., Ltd. (SZSE:301377) shares have been powering on, with a gain of 25% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 64% in the last year.

After such a large jump in price, Guangdong Dtech Technology's price-to-earnings (or "P/E") ratio of 50.7x 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 38x and even P/E's below 21x 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.

Guangdong Dtech Technology's negative earnings growth of late has neither been better nor worse than most other companies. One possibility is that the P/E is high because investors think the company can turn things around and break free from the broader downward trend in earnings. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Guangdong Dtech Technology

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

How Is Guangdong Dtech Technology's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Guangdong Dtech Technology's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 1.9%. The last three years don't look nice either as the company has shrunk EPS by 18% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 67% during the coming year according to the only analyst following the company. With the market only predicted to deliver 37%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Guangdong Dtech Technology's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Guangdong Dtech Technology's P/E is getting right up there since its shares have risen strongly. 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.

As we suspected, our examination of Guangdong Dtech Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Guangdong Dtech Technology that you should be aware of.

If these risks are making you reconsider your opinion on Guangdong Dtech Technology, 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.