Suzhou Kingswood Education Technology Co., Ltd.'s (SZSE:300192) Shares Climb 44% But Its Business Is Yet to Catch Up

Suzhou Kingswood Education Technology Co., Ltd. (SZSE:300192) shares have continued their recent momentum with a 44% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 63%.

Although its price has surged higher, there still wouldn't be many who think Suzhou Kingswood Education Technology's price-to-earnings (or "P/E") ratio of 36.1x is worth a mention when the median P/E in China is similar at about 34x. 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.

Recent times have been pleasing for Suzhou Kingswood Education Technology as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, 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.

View our latest analysis for Suzhou Kingswood Education Technology

Keen to find out how analysts think Suzhou Kingswood Education Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Growth For Suzhou Kingswood Education Technology?

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

If we review the last year of earnings growth, the company posted a terrific increase of 34%. EPS has also lifted 27% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 9.9% each year during the coming three years according to the only analyst following the company. Meanwhile, the rest of the market is forecast to expand by 19% each year, which is noticeably more attractive.

In light of this, it's curious that Suzhou Kingswood Education Technology's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Suzhou Kingswood Education Technology's P/E?

Its shares have lifted substantially and now Suzhou Kingswood Education Technology's P/E is also back up to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Suzhou Kingswood Education Technology currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Suzhou Kingswood Education Technology is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.