Stock Analysis

Market Participants Recognise KBC Corporation, Ltd.'s (SHSE:688598) Earnings Pushing Shares 34% Higher

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Those holding KBC Corporation, Ltd. (SHSE:688598) shares would be relieved that the share price has rebounded 34% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 60% share price drop in the last twelve months.

Following the firm bounce in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider KBC Corporation as a stock to potentially avoid with its 34.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With earnings that are retreating more than the market's of late, KBC Corporation has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for KBC Corporation

SHSE:688598 Price to Earnings Ratio vs Industry March 7th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on KBC Corporation.

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, KBC Corporation would need to produce impressive growth in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 66%. This means it has also seen a slide in earnings over the longer-term as EPS is down 7.7% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 171% over the next year. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

In light of this, it's understandable that KBC Corporation'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.

What We Can Learn From KBC Corporation's P/E?

KBC Corporation'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.

As we suspected, our examination of KBC Corporation'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.

Before you settle on your opinion, we've discovered 1 warning sign for KBC Corporation that you should be aware of.

You might be able to find a better investment than KBC Corporation. 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).

Valuation is complex, but we're helping make it simple.

Find out whether KBC Corporation is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.