What Suzhou Kingswood Education Technology Co., Ltd.'s (SZSE:300192) 25% Share Price Gain Is Not Telling You

Suzhou Kingswood Education Technology Co., Ltd. (SZSE:300192) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The annual gain comes to 166% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Suzhou Kingswood Education Technology may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 42.4x, since almost half of all companies in China have P/E ratios under 36x and even P/E's lower than 20x are not unusual. 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.

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 seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out 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.

Does Growth Match The High P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 19%. The latest three year period has also seen an excellent 105% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 14% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is noticeably more attractive.

With this information, we find it concerning that Suzhou Kingswood Education Technology is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Final Word

Suzhou Kingswood Education Technology shares have received a push in the right direction, but its P/E is elevated too. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Suzhou Kingswood Education Technology currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Suzhou Kingswood Education Technology (of which 1 is a bit concerning!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.