Why Investors Shouldn't Be Surprised By NAURA Technology Group Co., Ltd.'s (SZSE:002371) 28% Share Price Surge

NAURA Technology Group Co., Ltd. (SZSE:002371) shareholders have had their patience rewarded with a 28% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

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 NAURA Technology Group as a stock to potentially avoid with its 43.6x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, NAURA Technology Group has been doing quite well of late. 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for NAURA Technology Group

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

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

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

Taking a look back first, we see that the company grew earnings per share by an impressive 68% last year. Pleasingly, EPS has also lifted 681% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 28% per annum over the next three years. That's shaping up to be materially higher than the 22% each year growth forecast for the broader market.

In light of this, it's understandable that NAURA Technology Group'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

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

As we suspected, our examination of NAURA Technology Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for NAURA Technology Group you should know about.

You might be able to find a better investment than NAURA Technology Group. 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).

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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.